Compound Interest Calculator

Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. It's often called "interest on interest" and can significantly increase your investment over time. For example, $10,000 invested at 10% annual return grows to $17,449 in 6 years — the extra $1,449 beyond simple interest is the compounding effect.

The more frequently interest is compounded, the more you'll earn. Monthly compounding generates slightly higher returns than annual compounding because interest is calculated and added to your principal more often. On $10,000 at 10% over 30 years: annual compounding yields $174,494, while monthly compounding yields $198,374 — a $23,880 difference from frequency alone.

Historical S&P 500 returns average approximately 10% annually (before inflation). Conservative investments like bonds typically return 4-6%, while aggressive stock portfolios could target 12-15%. A balanced portfolio often assumes 7-8% after inflation. Always consider your risk tolerance and investment timeline when choosing a rate.

Both matter, but consistent monthly contributions often have a greater long-term impact. A $10,000 lump sum at 10% for 30 years grows to $174,494. But $500/month for 30 years at 10% grows to $1,139,824 — even though your total contributions ($180,000) were much higher, the compounding on regular contributions creates extraordinary wealth over time.

The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual return rate: at 10%, your money doubles in approximately 7.2 years. At 6%, it takes 12 years. This mental shortcut helps you quickly assess the power of different return rates without a calculator.

This calculator shows nominal returns (before taxes and inflation). To estimate real (after-inflation) returns, subtract the average inflation rate (historically ~3%) from your expected return. For example, use 7% instead of 10% for inflation-adjusted projections. Tax impact varies based on account type — investments in tax-advantaged accounts (401k, IRA, Roth) grow tax-deferred or tax-free.