Compound Interest Calculator
Calculate how an investment grows over time with compound interest and optional regular contributions.
Compound interest is the mechanism behind every long-term investment outcome. Einstein allegedly called it the eighth wonder of the world, probably apocryphal, but the point stands. The numbers that come out of a 30-year compound interest calculation genuinely surprise people who've never run them. $300/month for 30 years at 7% is over $340,000, from $108,000 of actual contributions.
$300/month for 30 years at 7% annual return: $108,000 contributed, $340,000+ ending balance. The interest earned ($232,000+) exceeds the total amount contributed by more than 2:1.
The compound interest formula
For a lump sum: A = P × (1 + r/n)^(nt), where P is principal, r is annual rate, n is compounding periods per year, t is years. For regular contributions added each period, the future value of an annuity formula applies: FV = PMT × ((1 + r/n)^(nt) − 1) ÷ (r/n). The total balance is the sum of both, the grown principal plus the grown annuity of contributions.
Why compounding frequency matters less than you think
Daily compounding vs monthly compounding at 7% annual rate: over 20 years on $10,000, the difference is about $200. The effective annual rate from daily compounding at 7% nominal is 7.25%; from monthly compounding it's 7.23%. The difference is real but small compared to the rate of return or the contribution amount. Don't optimize for compounding frequency at the expense of investment quality or contribution consistency.
The rule of 72
Divide 72 by the annual return rate to find the approximate doubling time. At 7%: 72 ÷ 7 = 10.3 years to double. At 10%: 7.2 years. At 4%: 18 years. This lets you quickly estimate long-term outcomes, a 30-year investment at 7% doubles approximately 3 times: $10,000 → $20,000 → $40,000 → $80,000 (actual: $76,123 without contributions).
Frequently asked questions
What return rate should I use?
The US stock market (S&P 500) has historically returned about 10% annually nominal and 7% real (inflation-adjusted) over long periods. For conservative planning, 6–7% real is commonly used for diversified stock/bond portfolios. Higher expected returns require either more risk or are unrealistic for planning. Use 5–7% for conservative estimates; 7–10% for more aggressive assumptions.
Does tax affect compound interest growth?
Significantly, in taxable accounts. In a tax-deferred account (401k, IRA), growth compounds without annual tax drag. In a taxable brokerage account, dividends and realized gains are taxed annually, reducing the effective compounding rate. This is the primary reason to max tax-advantaged accounts before investing in taxable ones for long-term savings.