Compound Interest Calculator

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only applies to the original amount, compound interest causes your balance to grow exponentially over time — often described as "interest on interest."

Simple interest is calculated only on the original principal. For example, $10,000 at 5% simple interest earns $500 every year regardless of how long you invest. With compound interest, you earn $500 the first year, then $525 the second year (5% of $10,500), and so on. Over 30 years, $10,000 at 5% grows to $25,000 with simple interest but $43,219 with annual compounding.

More frequent compounding produces slightly higher returns. For $10,000 at 5% over 10 years: daily compounding yields $16,487 versus $16,289 with annual compounding — a difference of about $198. Most savings accounts compound daily, while many CDs compound monthly or quarterly.

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 to get the approximate number of years. At 6%, your money doubles in about 12 years (72 / 6 = 12). At 8%, it takes roughly 9 years.

Regular monthly contributions dramatically accelerate growth because each new deposit also earns compound interest. Adding just $200/month to a $10,000 investment at 5% annual return yields roughly $94,000 after 20 years — compared to $26,533 without contributions. Starting early and contributing consistently is the most powerful wealth-building strategy.