How to use this compound interest calculator
- Enter your initial deposit — the lump sum you're starting with (or plan to start with)
- Enter the annual interest rate — find this on your savings account, CD, or investment product
- Set the time period — how many years you plan to let the money grow
- Choose a compounding frequency — monthly is standard for most savings accounts
- Optionally add a monthly contribution if you plan to add money regularly
- Click Calculate Growth to see your final balance, total interest, and year-by-year chart
What is compound interest?
Compound interest is the most powerful force in personal finance. Unlike simple interest — which only earns on your original deposit — compound interest earns on itself. Your interest earns interest. This creates exponential growth over time, which is why small amounts invested early can grow into surprisingly large sums.
Albert Einstein is often (possibly incorrectly) quoted as calling compound interest "the eighth wonder of the world." Whether or not he said it, the sentiment is right. A single $5,000 deposit at 7% annual interest, left alone for 30 years, becomes over $38,000 — without adding another penny. The same deposit with monthly contributions of $200 grows to over $240,000.
The compound interest formula
The standard formula is: A = P(1 + r/n)^(nt)
- A = Final amount
- P = Principal (starting amount)
- r = Annual interest rate (as a decimal — 6% = 0.06)
- n = Number of compounding periods per year (12 for monthly)
- t = Time in years
When you add regular contributions, each contribution also starts compounding from the moment it's added. This calculator accounts for that, applying the compound formula to both the principal and each monthly addition.
APY vs APR — what's the difference?
APR (Annual Percentage Rate) is the simple stated interest rate. APY (Annual Percentage Yield) is what you actually earn after compounding. For a 6% APR compounding monthly, the APY is approximately 6.17% — because each month's interest earns a small amount of additional interest throughout the year. When comparing savings accounts, always compare APY, not APR.
The Rule of 72 — quick doubling time estimate
Divide 72 by your interest rate to estimate how many years it takes to double your money. At 6%, your money doubles in about 12 years. At 9%, about 8 years. At 3%, about 24 years. It's not exact, but it's a useful mental shortcut for comparing investment options quickly.
Compounding frequency comparison
The more frequently interest compounds, the more you earn — though the differences become smaller at higher frequencies. Going from annual to monthly compounding makes a meaningful difference. Going from daily to monthly is barely noticeable for most balances. Use the table above (after calculating) to see the exact difference for your scenario.
Frequently asked questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest which only earns on the principal, compound interest earns on itself — making it exponentially more powerful over time.
How often does interest compound?
Interest can compound daily, monthly, quarterly, semi-annually, or annually. The more frequently it compounds, the faster your balance grows. Daily compounding produces the highest returns for the same annual rate.
What is the compound interest formula?
The compound interest formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate as a decimal, n is the number of compounding periods per year, and t is the time in years.
What is the difference between APR and APY?
APR (Annual Percentage Rate) is the simple annual interest rate without compounding. APY (Annual Percentage Yield) includes the effect of compounding and represents the actual return earned over a year. APY is always equal to or higher than APR.
How does compound interest differ from simple interest?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus any previously earned interest. Over long periods, the difference becomes dramatic — compound interest produces significantly more growth.
What is the Rule of 72?
The Rule of 72 is a quick mental math shortcut: divide 72 by the annual interest rate to estimate how many years it takes to double your money. For example, at 6% annual interest, your money doubles in roughly 72 ÷ 6 = 12 years.