Finance & Business
Compound Interest Calculator
Calculate how your investments grow with compound interest over time.
Enter values to calculate compound interest
Related to Compound Interest Calculator
The compound interest calculator uses the standard compound interest formula with regular contributions to calculate how your investment grows over time. The formula takes into account your initial investment (principal), regular monthly contributions, annual interest rate, and compounding frequency.
The Basic Formula
For compound interest with regular contributions, we use two components: 1. Growth of initial principal: P(1 + r/n)^(nt) 2. Growth of regular contributions: PMT × (((1 + r/n)^(nt) - 1) / (r/n)) × (n/12) Where: - P = Principal (initial investment) - r = Annual interest rate (as decimal) - n = Number of times interest is compounded per year - t = Time in years - PMT = Monthly contribution amount
The calculator considers different compounding frequencies (daily, monthly, quarterly, semi-annually, and annually) and allows you to see how changing these parameters affects your investment growth. It also accounts for regular monthly contributions, showing how consistent investing can significantly impact your final balance.
The calculator provides three key metrics to help you understand your investment growth:
Final Balance
The total value of your investment at the end of the specified time period, including your initial investment, all contributions, and accumulated interest.
Total Contributions
The sum of your initial investment and all monthly contributions made over the investment period. This shows how much money you've actually invested.
Total Interest
The difference between your final balance and total contributions, representing how much your money has earned through compound interest.
The interactive graph visualizes your investment growth over time, helping you understand how compound interest accelerates wealth building, especially over longer time periods.
1. What is compound interest?
Compound interest is when you earn interest not only on your initial investment but also on the accumulated interest from previous periods. This creates a snowball effect where your money grows exponentially over time.
2. How does compounding frequency affect returns?
More frequent compounding (e.g., daily vs. annually) results in slightly higher returns because interest is calculated and reinvested more often. However, the difference becomes more noticeable over longer time periods and with higher interest rates.
3. Why should I make regular contributions?
Regular contributions, even small ones, can significantly increase your final balance due to compound interest. Each contribution starts earning interest immediately and compounds over time, accelerating your wealth building.
4. What interest rate should I use?
The appropriate interest rate depends on your investment type. Historically, the S&P 500 has averaged about 7% annual return after inflation. Conservative investments like bonds might return 2-4%, while high-yield savings accounts typically offer 1-3%.
5. What is the scientific source for this calculator?
This calculator implements the standard compound interest formula developed in financial mathematics. The formula is derived from the fundamental principle of exponential growth, first documented by Richard Witt in his 1613 book "Arithmeticall Questions." The formula has been validated through centuries of financial practice and is used by financial institutions worldwide. For regular contributions, we use the future value of an annuity formula, which is derived from the geometric series sum formula in mathematics. These formulas are standardized in financial textbooks and are used by the International Financial Reporting Standards (IFRS) for financial calculations.