📈 Compound Interest Calculator
The Magic of Compounding
Compound interest means you earn interest on your interest. Albert Einstein reportedly called it the "eighth wonder of the world." The formula for compound interest is: A = P(1 + r/n)^(nt), where P is principal, r is annual rate, n is compounds per year, and t is time in years.
Effect of Compounding Frequency
| Frequency | Times/Year | Effect |
|---|---|---|
| Daily | 365 | Highest growth |
| Monthly | 12 | Common for savings |
| Quarterly | 4 | Common for bonds |
| Annually | 1 | Lowest growth |
Frequently Asked Questions
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, it grows exponentially. Einstein is often quoted calling it 'the eighth wonder of the world.'
Interest can compound daily, monthly, quarterly, semi-annually, or annually. The more frequently it compounds, the more you earn. Daily compounding at 5% earns slightly more than monthly compounding at the same rate — the difference grows significantly over decades.
The Rule of 72 is a quick way to estimate how long it takes to double your money: divide 72 by your annual interest rate. At 6% annual return, your money doubles in roughly 72 ÷ 6 = 12 years. It's accurate within 1–2 years for rates between 4–15%.
APR (Annual Percentage Rate) is the simple annual interest rate. APY (Annual Percentage Yield) reflects the actual return after compounding. APY is always equal to or higher than APR. When comparing savings accounts, look at APY.
Use the compound interest calculator to work backwards: enter your target future value, expected annual return, and time horizon. The 'monthly contribution' result tells you exactly how much to save each month to hit your goal.