Compound Interest Calculator
Calculate how your investments grow over time with compound interest
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Understanding Compound Interest
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is earned on the principal sum plus previously accumulated interest.
The Power of Compound Interest
Compound interest is often described as "the eighth wonder of the world" due to its powerful effect on wealth accumulation over time. The longer the time period, the more dramatic the effect of compounding becomes. This is why starting to save and invest early is so important for long-term financial goals like retirement.
Compounding Frequency
The frequency at which interest is compounded affects the total amount of interest earned. Common compounding frequencies include daily, monthly, quarterly, and annually. More frequent compounding results in more interest earned, although the difference between daily and monthly compounding is often minimal for typical interest rates.
The Rule of 72
The Rule of 72 is a simple way to estimate how long it will take for an investment to double in value with compound interest. Divide 72 by the annual interest rate to get the approximate number of years. For example, at 6% interest, an investment will double in about 12 years (72 ÷ 6 = 12).