Compound Interest Calculator
Frequently Asked Questions
What is the compound interest formula?
The compound interest formula is FV = P(1+r)^n + PMT[((1+r)^n - 1)/r], where P is the principal, r is the periodic interest rate, n is the number of periods, and PMT is the periodic contribution. This calculator applies this formula with monthly compounding to project your investment growth.
How often does interest compound?
Interest can compound daily, monthly, quarterly, or annually depending on your financial institution. This calculator uses monthly compounding, which is the most common frequency for savings accounts and investment accounts. More frequent compounding results in slightly higher returns.
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal, while compound interest is calculated on both the principal and all previously accumulated interest. Over long periods, compound interest generates significantly more wealth because your earnings themselves start earning returns.
What is a good compound interest rate for investments?
Historically, the U.S. stock market has returned approximately 7-10% annually after inflation. High-yield savings accounts typically offer 4-5% APY, while bonds return 3-6%. The best rate depends on your risk tolerance and investment timeline.
How can I maximize compound interest on my investments?
Start investing as early as possible, make consistent monthly contributions, reinvest all dividends and interest, and minimize fees. Even small increases in your contribution amount or starting a few years earlier can result in dramatically higher ending balances due to the exponential nature of compounding.
How Compound Interest Works
Compound interest is the interest earned on both your initial principal and the accumulated interest from previous periods. This calculator uses the standard compound interest formula: FV = P(1+r)^n + PMT[((1+r)^n - 1)/r], where P is your initial investment, PMT is your monthly contribution, r is the monthly interest rate, and n is the total number of months. The results update in real time as you adjust the inputs, giving you instant insight into how different savings strategies affect your long-term wealth. Compounding is often called the eighth wonder of the world because small, consistent contributions can grow into substantial wealth over decades.