Compound Interest Calculator

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. This creates a snowball effect where your money grows exponentially over time.

More frequent compounding (daily vs annually) results in slightly higher returns because interest is calculated and added to the principal more often, creating more opportunities for interest-on-interest growth.

The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual interest rate. For example, at 8% interest, your money doubles in approximately 9 years (72/8=9).

Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus any accumulated interest. Over time, compound interest grows exponentially while simple interest grows linearly, making a huge difference for long-term savings.

Inflation reduces the real value of your returns. If your investment earns 7% but inflation is 3%, your real return is approximately 4%. Always consider the 'real' (inflation-adjusted) rate of return when planning long-term savings goals.

Savings accounts, certificates of deposit (CDs), money market accounts, and bonds all offer compound interest. Investment accounts with reinvested dividends also benefit from compounding. The key is to start early and let time work in your favor.

The difference between annual and daily compounding is relatively small at low rates but becomes more significant at higher rates and over longer periods. For example, $10,000 at 10% compounded daily yields about $50 more per year than annual compounding.

Start investing as early as possible, make regular contributions, reinvest all dividends and interest, choose tax-advantaged accounts (401k, IRA), minimize fees, and avoid withdrawals. Even small amounts invested consistently grow substantially over decades.