Compound Interest Calculator
See how an investment or loan grows when interest is compounded annually. Enter your principal, interest rate, and time horizon to find the future value of your money.
About this calculator
Compound interest means you earn interest not only on your original principal but also on the interest already accumulated. The future value formula is A = P × (1 + r/100)^t, where P is the principal, r is the annual interest rate as a percentage, and t is the number of years. Each year, the balance is multiplied by the growth factor (1 + r/100), so growth is exponential rather than linear. This is often called 'interest on interest' and is the mechanism behind long-term wealth building in savings accounts, bonds, and retirement funds. The difference between simple and compound interest grows dramatically over time — a 7% annual compound return doubles money roughly every 10 years (the Rule of 72: 72 / rate ≈ doubling time).
How to use
Say you invest $5,000 at an annual interest rate of 6% for 10 years. Enter Principal = 5000, Rate = 6, Time = 10. The calculator computes A = 5000 × (1 + 6/100)^10 = 5000 × (1.06)^10 = 5000 × 1.7908 ≈ $8,954.24. Your investment grew by $3,954.24 purely through compounding, without any additional contributions. Compare this to simple interest: 5000 × 0.06 × 10 = $3,000 in interest — compound interest earned $954 more.
Frequently asked questions
What is the difference between compound interest and simple interest?
Simple interest is calculated only on the original principal each period: I = P × r × t. Compound interest recalculates the base each period, adding earned interest to the principal before computing the next period's interest. Over short time horizons the difference is small, but over decades compound interest produces dramatically larger returns. For example, $10,000 at 5% for 30 years yields $15,000 with simple interest but approximately $43,219 with annual compounding — nearly three times as much.
How does compounding frequency affect the final amount?
This calculator assumes annual compounding (once per year), but interest can compound monthly, quarterly, or even daily. More frequent compounding means interest is added to the principal more often, so you earn interest on interest sooner. The general formula for n compounding periods per year is A = P × (1 + r/(100n))^(nt). Daily compounding produces a slightly higher return than annual compounding at the same nominal rate. The difference becomes more significant at higher interest rates and longer time periods.
How can I use compound interest to plan for retirement savings?
Start by estimating a realistic annual return — diversified stock index funds have historically averaged roughly 7–10% before inflation. Enter your current savings as the principal, your expected rate as r, and the number of years until retirement as t. The result shows your projected nest egg from that lump sum alone, without additional contributions. To account for regular contributions, you would need an annuity formula in addition, but this calculator gives a powerful baseline. The key takeaway is that starting earlier has an outsized effect: money invested at age 25 compounds for 40 years instead of 20, resulting in roughly four times the final value at the same rate.