Albert Einstein reportedly called compound interest "the eighth wonder of the world." This calculator reveals the astonishing power of earning interest on your interest—and why starting early matters more than you might think.
How This Calculator Works
This calculator projects your money's growth through compound interest:
- Principal: Your starting investment
- Monthly Contribution: Regular additions to your investment
- Interest Rate: Expected annual return
- Compounding Frequency: How often interest is calculated and added
- Time Period: Years until you need the money
- Future Value: What your money grows to
The Formula Explained
A = P(1 + r/n)^(nt) + PMT × [(1 + r/n)^(nt) - 1] / (r/n)
Where:
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Compounding periods per year
- t = Time in years
- PMT = Regular contribution
Step-by-Step Example
The Power of Starting Early
$200/month invested at 8% annual return:
| Start Age | Years | Total Contributed | Final Value |
| 25 | 40 | $96,000 | $698,000 |
| 35 | 30 | $72,000 | $298,000 |
| 45 | 20 | $48,000 | $118,000 |
Starting 10 years earlier more than doubles your final wealth!
Frequently Asked Questions
What is compound interest?
Compound interest is interest earned on interest. With simple interest, you earn only on your original principal. With compound interest, each interest payment is added to your balance, and future interest is calculated on the new, larger amount. This creates exponential growth over time.
Why is compound interest so powerful over time?
Compound interest creates a snowball effect. Early on, gains seem small. But over decades, the accumulated interest itself generates enormous returns. In a 30-year investment, your later years' gains may exceed all your original contributions combined.
How does compounding frequency affect returns?
More frequent compounding earns slightly more. At 10% annual rate on $10,000:
- Annually: $1,000 interest
- Monthly: $1,047 interest
- Daily: $1,052 interest
The difference is modest but compounds over time. Most investments compound daily or monthly.
What's the Rule of 72?
The Rule of 72 is a quick mental math shortcut: 72 ÷ interest rate = years to double. At 8% return, money doubles in ~9 years (72/8=9). At 10%, it doubles in ~7.2 years. This helps you quickly estimate long-term growth without complex calculations.
How does compound interest apply to debt?
Compound interest works against you with debt—you owe interest on interest. Credit card debt at 20% can double in 3.6 years if unpaid. This is why paying off high-interest debt is urgent. The same force that builds wealth can destroy it through debt.
What's the difference between APY and interest rate?
APY (Annual Percentage Yield) includes compounding effects; APR (Annual Percentage Rate) is the base rate. A 10% APR compounded monthly equals 10.47% APY. When comparing investments, use APY for accurate comparison. When comparing loans, use APR.
How can I maximize compound interest benefits?
To maximize compound interest: (1) Start early—time is your greatest asset, (2) Invest consistently—automate contributions, (3) Reinvest earnings—don't withdraw interest, (4) Minimize fees—fees reduce compounding, (5) Be patient—major growth happens in later years.
Is compound interest guaranteed?
Compound interest is guaranteed in savings accounts and CDs (at stated rates). For investments like stocks, the principle of compounding applies but returns fluctuate. Stock market historical average is ~10% but individual years vary wildly. Long-term investing smooths out volatility.
Key Points to Remember
- Time beats amount: Starting early matters more than investing more later
- Double it: Use Rule of 72 to estimate doubling time
- Consistency wins: Regular contributions amplify compounding
- Works both ways: Compound interest grows wealth OR debt
- Reinvest everything: Don't interrupt the compounding machine