Compound Interest Calculator

What is Compound Interest?

Compound interest is the process of earning interest not just on your original investment, but also on all the interest you have already earned. Often described as "interest on interest," it is the fundamental engine behind long-term wealth building. Albert Einstein reportedly called it the "eighth wonder of the world" — those who understand it, earn it; those who don't, pay it.

The difference between simple and compound interest is dramatic over long timeframes. With simple interest, a $5,000 investment at 7% earns the same $350 every year. With annual compounding, that $350 in year one becomes part of the base, so year two earns interest on $5,350 — and the effect snowballs from there. Over 20 years with monthly contributions of $200, the gap between what you put in and what compounding produces can amount to tens of thousands of dollars.

The three variables that matter most are rate of return, time in the market, and contribution frequency. Even a 1% increase in annual return compounded over 30 years can mean a six-figure difference in your final balance — which is why low-fee index funds are so widely recommended for long-term investors.

How to Use This Calculator

Every field updates your results in real time — no button needed. Here is what each input does:

• Initial Investment — The lump sum you invest on day one. Even a small amount has an outsized effect when given enough time.
• Annual Interest Rate — Your expected average yearly return. The S&P 500 has historically averaged around 10.7% before inflation. A conservative estimate for long-term planning is 7% (roughly inflation-adjusted).
• Time Period — How many years you plan to stay invested. Time is the most powerful lever: doubling your investment period has a far greater impact than doubling your contribution amount.
• Compound Frequency — How often interest is calculated and added to your balance. Monthly compounding is typical for most investment accounts and produces slightly better returns than annual compounding at the same rate.
• Monthly Contribution — The amount you add each month. Consistent contributions — even modest ones — dramatically accelerate growth through dollar-cost averaging.

The chart shows two lines side by side: the blue-yellow line shows your actual projected balance with compounding, and the green line shows what you would have if you simply deposited the same money with no growth at all. The gap between them is the value compounding adds.

Related Tools

Compound interest is just one piece of the investing puzzle. Try these calculators to build a fuller picture of your financial plan.