Compound Interest Calculator
Compound interest is the eighth wonder of the world. See how your money multiplies when returns are reinvested.
How Compound Interest Works
Compound interest means earning returns on your returns. Unlike simple interest — where you only earn on your original principal — compound interest reinvests every gain, creating exponential growth over time. The longer the period, the more dramatic the effect.
Simple interest example: $10,000 at 7% for 30 years = $31,000
Compound interest example: $10,000 at 7% for 30 years = $76,123
Same principal, same rate, same time — compound interest produces 2.5× more wealth.
The Formula
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)]
Where: A = final amount, P = principal, r = annual rate, n = compounding periods/year, t = years, PMT = monthly contribution. This calculator applies this formula in real time as you type.
Why Monthly Contributions Amplify Growth
| Scenario | Initial | Monthly | Years | Result (7%) |
|---|---|---|---|---|
| Lump sum only | $10,000 | $0 | 30 | $76,123 |
| Contributions only | $0 | $500 | 30 | $567,765 |
| Both combined | $10,000 | $500 | 30 | $643,888 |
The Early Start Advantage
An investor who starts at 22 and invests $400/month for 10 years (stopping at 32) accumulates approximately $735,000 by age 65 at 7% returns. An investor who starts at 32 and invests $400/month for 33 consecutive years accumulates approximately $644,000. Starting 10 years earlier — with one-third the contributions — produces more wealth. Time is the irreplaceable variable.
Also useful: FIRE Number Calculator — see when compound growth will fund your retirement.
Frequently Asked Questions
What annual return rate should I use?
The S&P 500 has historically returned approximately 10% annually (nominal) and 7% after inflation. For conservative long-term planning, use 6-7%. For optimistic projections, 8-9%. Most FIRE planners use 7% as the standard assumption.
Does compounding frequency matter?
Somewhat, but less than most people expect. $10,000 at 7% for 30 years: annual compounding = $76,123; monthly compounding = $78,218; daily compounding = $78,663. The difference between monthly and daily is only $445 — frequency matters far less than rate and time.
How do fees affect compound growth?
Dramatically. A 1% annual fee on $200,000 over 30 years costs approximately $300,000 in lost compound growth. Use low-cost index funds with expense ratios under 0.10% to keep the full benefit of compounding.
What's the Rule of 72?
A quick mental calculation: divide 72 by your annual return rate to find years to double. At 7% returns, money doubles every 10.3 years. At 6%, every 12 years. At 9%, every 8 years. Over a 40-year career, a 7% portfolio doubles approximately 3-4 times.