Compound Interest Calculator
Find out how much your investment grows when interest compounds annually. Enter your principal, rate, and time horizon to see the total future value.
About this calculator
Compound interest means you earn interest not just on your original principal, but also on the interest already accumulated. The formula is: Future Value = principal × (1 + rate/100)^time. Unlike simple interest, which grows linearly, compound interest grows exponentially — the longer the time horizon, the more dramatic the effect. For example, $1,000 at 8% for 30 years grows to over $10,000. This is why Albert Einstein reportedly called compound interest the 'eighth wonder of the world.' Understanding it helps investors make smarter decisions about saving early and choosing higher-yield accounts.
How to use
Suppose you invest $5,000 at an annual interest rate of 7% for 10 years. Plug the values into the formula: Future Value = 5000 × (1 + 7/100)^10 = 5000 × (1.07)^10 = 5000 × 1.9672 ≈ $9,836. So your $5,000 investment nearly doubles in 10 years purely through compound interest. Enter your own principal, rate, and time period to see how your money can grow.
Frequently asked questions
How does compound interest differ from simple interest on a savings account?
Simple interest is calculated only on the original principal, so a $1,000 deposit at 5% always earns $50 per year regardless of how long it sits. Compound interest, by contrast, adds earned interest back to the principal each period, so the next period's interest is calculated on a larger base. Over short periods the difference is small, but over decades it becomes enormous. This is why compound interest is the cornerstone of long-term investing and retirement planning.
What happens if interest compounds more frequently than once a year?
This calculator assumes annual compounding, meaning interest is added once per year. However, many accounts compound monthly, daily, or even continuously. More frequent compounding means slightly higher effective returns because interest starts earning interest sooner. For monthly compounding you would adjust the formula to principal × (1 + rate/1200)^(time×12). Always check your account's compounding frequency to get the most accurate projection.
Why does starting to invest early make such a big difference with compound interest?
Because compound interest is exponential, the time variable has the most powerful effect on the final value. Investing $5,000 at age 25 at 7% grows to roughly $74,000 by age 65, while the same investment made at age 45 grows to only about $19,000 — nearly four times less, despite only a 20-year head start. This dramatic difference illustrates why financial advisors consistently urge people to begin investing as early as possible, even in small amounts.