Compound Interest Calculator

Compound interestis interest earned on both your original principal and on previously accumulated interest. It's the mechanism that turns modest, consistent saving into substantial wealth over time. Albert Einstein reportedly called it the “eighth wonder of the world” — and whether or not he actually said it, the math backs up the sentiment.

Simple vs Compound Interest

With simple interest, you earn interest only on your original deposit. $10,000 at 7% simple interest earns $700/year, every year — $21,000 in interest over 30 years. With compound interest, you earn interest on your interest. The same $10,000 at 7% compounded annually grows to $76,123 — earning $66,123 in interest. That's more than triple what simple interest produces.

Compounding Frequency Matters (A Little)

Daily compounding produces slightly more than monthly, which produces slightly more than annually. On $10,000 at 7% over 30 years: annual compounding yields $76,123, monthly yields $81,165, and daily yields $81,588. The difference between monthly and daily is minimal — the bigger factor is your rate of return and how long you stay invested.

The Power of Contributions

Regular contributions supercharge compounding. $10,000 invested once at 7% for 30 years grows to ~$76,000. But adding just $500/month turns that into over $600,000 — with only $190,000 coming from your contributions. The remaining $410,000+ is pure compound growth. Starting early and contributing consistently matters far more than timing the market.

The Rule of 72

A quick mental shortcut: divide 72 by your annual return to estimate how many years it takes to double your money. At 7%, your money doubles roughly every 10.3 years. At 10%, every 7.2 years. This rule highlights why even small differences in return rates compound into large differences over decades.

Frequently Asked Questions

What return should I assume?The S&P 500 has returned roughly 10% annually before inflation (about 7% after inflation) over the past century. For conservative planning, use 6-7% for stocks and 3-4% for bonds. This calculator shows nominal (pre-inflation) returns.

Does compounding frequency really matter?For savings accounts and CDs, yes — check if your bank compounds daily vs monthly. For stock market investments, returns compound continuously through price appreciation, so the frequency setting is less relevant.

How do taxes affect compound growth? In taxable accounts, dividends and capital gains distributions are taxed annually, reducing the compounding effect. Tax- advantaged accounts (401k, IRA, HSA) allow full compounding without annual tax drag, which is why maximizing those accounts first is usually optimal.