Compound Interest Calculator

Calculate Compound Growth

$
$
%

Future Value

$124,379

Total Contributed

$53,000

Interest Earned

$71,379

See how this is calculated

How This Calculation Works

Compound interest means you earn returns not just on your original deposit, but also on the interest that deposit has already earned. This calculator grows your initial deposit using the compound interest formula, then adds the future value of your regular monthly contributions using the future-value-of-an-annuity formula — combining both into a single projected balance.

The calculator assumes monthly compounding, meaning your account balance earns a new round of interest every month, which is then added to the balance before the next month's interest is calculated. This is why growth accelerates over time — it's not a straight line, but a curve that gets steeper the longer your money stays invested.

The gap between your future value and your total contributions is the interest (or investment growth) you've earned — the part of your balance that came from compounding rather than from your own deposits.

Common Mistakes to Avoid

  • Underestimating the power of time. The single biggest factor in compound growth isn't the contribution amount — it's time. Starting 10 years earlier with smaller contributions often beats starting later with larger ones.
  • Using an unrealistic rate of return. Historical stock market averages (around 7–10% annually before inflation) are often used as a benchmark, but returns vary year to year and aren't guaranteed. Use a conservative estimate for planning purposes.
  • Ignoring fees. Investment account fees and fund expense ratios eat into your returns every year. A 1% annual fee might sound small, but compounded over decades it can consume a significant portion of your final balance.
  • Forgetting about inflation. A dollar in 30 years won't buy what it buys today. Consider looking at your projected value in "today's dollars" by subtracting an assumed inflation rate from your return rate.

Worked Example

Scenario: Starting with $5,000, contributing $200/month, at a 7% expected annual return, over 20 years.

Step 1 — Monthly rate: 7% ÷ 12 = 0.5833% per month.

Step 2 — Growth of the initial deposit: $5,000 × (1.005833)²⁴⁰ ≈ $20,190.

Step 3 — Growth of contributions: $200 × [((1.005833)²⁴⁰ − 1) ÷ 0.005833] ≈ $104,220.

Step 4 — Future value: $20,190 + $104,220 ≈ $124,410.

Step 5 — Interest earned: Total contributed = $5,000 + ($200 × 240) = $53,000. Interest earned ≈ $124,410 − $53,000 = $71,410.

Frequently Asked Questions

What's the difference between compound interest and simple interest?
Simple interest is calculated only on the original principal, so it grows at a constant rate. Compound interest is calculated on the principal plus all previously earned interest, so growth accelerates over time. Nearly all savings and investment accounts use compound interest.
Does compounding frequency matter?
Yes, more frequent compounding (daily vs. monthly vs. annually) produces slightly higher returns for the same stated annual rate, because interest starts earning its own interest sooner. The difference is usually small for typical savings rates but can add up over long periods.
What is a realistic rate of return to use?
For a high-yield savings account, 4–5% is typical in a normal rate environment. For a diversified stock market portfolio over the long term, 7–10% before inflation is a commonly cited historical average, though returns vary significantly year to year and aren't guaranteed.
Why does starting early matter so much?
Because compound growth is exponential, not linear — money invested earlier has more compounding cycles to benefit from. A dollar invested at 25 can be worth dramatically more at 65 than the same dollar invested at 35, even with identical contribution amounts, purely because of the extra decade of compounding.

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