Compound Interest Calculator
Projects the future value of your savings by combining a lump-sum investment with ongoing monthly contributions and compound interest. Ideal for planning long-term goals like college funds or retirement.
About this calculator
Compound interest earns returns not just on your original principal but on all previously accumulated interest, making it exponentially more powerful than simple interest. The future value of a lump sum is calculated as: FV_lump = P × (1 + r)ⁿ, where P is the principal, r is the annual rate, and n is the number of years. Monthly contributions grow according to the future value of an annuity: FV_contributions = C × [(1 + r/12)^(n×12) − 1] / (r/12), where C is the monthly contribution. The total future value is the sum of both components. Note the formula compounds the lump sum annually and the contributions monthly. The longer your investment horizon, the more dramatic the compounding effect becomes — this is why starting early is so critical to wealth building.
How to use
Say you invest $5,000 initially at a 7% annual rate for 20 years, adding $200 per month. Lump sum: FV_lump = 5,000 × (1.07)²⁰ = 5,000 × 3.8697 = $19,348. Monthly contributions: r/12 = 0.07/12 ≈ 0.005833; (1.005833)^240 ≈ 3.9103; FV_contributions = 200 × (3.9103 − 1) / 0.005833 = 200 × 498.93 ≈ $99,786. Total future value: $19,348 + $99,786 = $119,134. You contributed $53,000 in total; compounding generated over $66,000 in growth.
Frequently asked questions
How does compounding frequency affect the growth of my investment?
More frequent compounding means interest is calculated and added to your balance more often, resulting in slightly higher returns. Daily compounding yields marginally more than monthly, which yields more than annual compounding at the same stated rate. For example, $10,000 at 7% compounded annually for 20 years grows to $38,697, while monthly compounding produces approximately $40,064. The difference grows with the interest rate and time horizon, making compounding frequency a meaningful factor in long-term investing.
What is the Rule of 72 and how does it relate to compound interest?
The Rule of 72 is a quick mental shortcut to estimate how long it takes for an investment to double: divide 72 by the annual interest rate. At 6%, your money doubles in roughly 72 / 6 = 12 years. At 9%, it doubles in about 8 years. This rule works because of the mathematics of exponential compound growth. While it is an approximation, it is accurate enough for everyday planning and helps illustrate why a higher return rate dramatically shortens the time to reach financial goals.
Why does starting to invest early make such a big difference with compound interest?
Compound interest rewards time above almost everything else because returns are earned on an ever-growing balance. A 25-year-old who invests $200 per month at 7% until age 65 accumulates roughly $525,000. A 35-year-old doing the same contributes for 10 fewer years but ends up with only about $243,000 — less than half — despite contributing only $24,000 less. Those extra 10 years of compounding nearly double the outcome. Starting even 2–3 years earlier can mean tens of thousands more at retirement.