Compound Interest Calculator

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Understanding Compound Interest

The Eighth Wonder of the World

Compound interest is often called the "eighth wonder of the world" by financial experts, and for good reason. Unlike simple interest, which only earns returns on your initial investment, compound interest allows you to earn interest on both your principal and accumulated interest. This creates a powerful snowball effect that can significantly accelerate your wealth building over time.

How to Use This Calculator

Enter your initial investment, monthly contributions, expected annual return rate, and time horizon. The calculator instantly shows how much your investment will grow, breaking down total contributions versus interest earned.

The Power of Starting Early

Starting with $5,000 and contributing just $200 monthly at a 7% annual return, after 30 years you'll have approximately $284,000. Only $77,000 of that is your actual contributions — the remaining $207,000 is pure compound interest. This is why starting early is crucial.

The Formula Explained

A = P(1 + r/n)^(nt)
A Final amount
P Principal investment
r Annual interest rate
n Compounds per year
t Time in years

Compounding Frequencies

Daily365× per year — maximum growth
Monthly12× per year — most common
Quarterly4× per year — bonds & CDs
Yearly1× per year — simplest

Frequently Asked Questions

How does compound interest work?

Compound interest is interest calculated on the initial principal and also on the accumulated interest from previous periods. This creates a snowball effect where your money grows faster over time compared to simple interest.

What is the formula for compound interest?

The compound interest formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years.

How much will $10,000 make in a high-yield savings account?

With $10,000 at 4% APY compounded monthly for 10 years, you would earn approximately $4,908 in interest, for a total of $14,908. Use our calculator to see exact numbers for your situation.

What is the difference between APY and APR?

APR (Annual Percentage Rate) is the simple interest rate, while APY (Annual Percentage Yield) includes compound interest. APY is always higher than APR when interest compounds more than once per year.