Compound Interest Calculator
Calculate compound interest to simulate investment growth. Enter principal, rate, term, and optional contributions.
📖 How to Use
- Enter the principal amount
- Enter the annual interest rate (%)
- Enter the investment period in years
- Select the compounding frequency (monthly recommended)
- Optionally enter monthly contribution amount
- View the final amount and yearly growth breakdown
✨ Features
- ✓Compound interest formula A = P(1 + r/n)^(nt)
- ✓5 compounding frequencies (annually, semi-annually, quarterly, monthly, daily)
- ✓Monthly contribution option for regular savings
- ✓Year-by-year growth table
- ✓Visual breakdown of principal/contributions/interest
- ✓Effective Annual Rate (EAR) calculation
📐 Formula
A = P(1 + r/n)^(nt) + PMT × [(1 + r/n)^(nt) - 1] / (r/n)💡 How It Works
- •Compound interest means earning interest on both the principal and accumulated interest.
- •In the formula A = P(1 + r/n)^(nt), P is principal, r is annual rate, n is compounding periods per year, t is time in years.
- •More frequent compounding (daily > monthly > annually) yields higher returns.
- •Effective Annual Rate (EAR) reflects the true annual return including compounding. EAR = (1 + r/n)^n - 1
- •Rule of 72: Years to double ≈ 72 ÷ interest rate (%)
- •In long-term investing, compound interest grows exponentially (the 'magic of compounding').
❓ FAQ
Q. What's the difference between simple and compound interest?
A. Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest. Compound interest is much more beneficial for long-term investments.
Q. Is monthly or annual compounding better?
A. More frequent compounding is better. At 5% annual rate, annual compounding gives 5% effective rate, while monthly compounding gives 5.12%.
Q. What is the Rule of 72?
A. A quick way to estimate how long it takes to double your money: 72 ÷ interest rate (%) = years to double. For example, at 6% it takes about 12 years.
Q. What will $10,000 become at 5% for 10 years?
A. With monthly compounding, approximately $16,470. That's about 65% return on the principal.
Q. Why is regular investing beneficial?
A. Regular monthly contributions help spread market volatility (dollar-cost averaging) and maximize the compound interest effect.
Q. What about taxes?
A. This calculator shows pre-tax returns. Investment gains are typically subject to capital gains tax, which varies by country and holding period.