Compound Interest Calculator: How Money Can Grow
Saving isn't just about the amount of money you have to set aside. It's also about how much time you have to let it grow. That's because the power of compound interest.
Compound interest can make your money grow faster because interest is calculated on the accumulated interest over time as well as on your original principal. Compounding can create a snowball effect, as the original deposits plus the income earned from those investments grow together.
This compound interest calculator helps you visualize how saving over time can lead to additional growth through the power of compound interest.
How to use the compound interest calculator
This calculator can help you visualize how your savings grow toward long-term goals like retirement planning, a home purchase, or another major milestone. Adjusting your inputs lets you explore different paths that could help you reach your savings goals.
To calculate compound interest, enter:
- Starting amount: The starting balance or current amount you have saved.
- Years to save: The total number of years you plan to save (your time horizon).
- Annual rate of return: The percentage you expect your savings to earn each year, before factoring in inflation or fees. This is an estimate you can adjust to see how different rates affect your results.
- Additional contributions: The amount that you plan on adding to your savings each period. This calculator assumes that you make your contributions at the beginning of each period.
- Frequency: How often you plan to make your additional contributions (weekly, biweekly, monthly, quarterly, or yearly)—choosing a higher compounding frequency means your earnings are added more often, allowing your balance to grow faster.
What is compound interest?
Compound interest happens when your money earns returns on both your original amount and on the interest that's already been added. This process allows your savings to grow faster over time compared with simple interest, because each period's interest builds on the last.
How compound interest works
Suppose you invest $10,000 at a 5% annual interest rate. In the first year, you'd earn $500 in interest, and over time, your total interest earned would continue to grow over time as compounding builds on each previous year's gains.
After one year, you'd earn $500 in interest, bringing your balance to $10,500. In year two, you'd earn interest not just on the initial investment ($10,000) but on the full $10,500—so your interest would grow to $525.
Over time, this compounding effect can make a powerful difference, especially if you do not make withdrawals and allow earnings to reinvest automatically.
Compound interest formula
This is the formula that the calculator is based on:
A = P (1 + r/n)^(n × t)
Where:
- A = the total amount after interest
- P = the principal (your starting amount)
- r = annual interest rate (in decimal form)
- n = number of compounding periods per year
- t = total number of years
This formula helps show how small differences in rate or compounding frequency can lead to large changes in total value over time.
Bottom line: Compound interest is powerful
A financial advisor can help you understand how compounding fits within your broader financial goals and can help guide you in making confident, well-informed financial decisions. Regular contributions to savings can see even greater growth as the interest compounds on both the original principal and the interest that has already been earned. The earlier you start and the more consistent you are, the greater the potential impact on your long-term financial future.