fincalculatorCompound Interest Calculator
Use this free Compound Interest Calculator to see how your savings grow exponentially. Simple, accurate, and easy to use for wealth planning.
Albert Einstein reputedly called compound interest the "eighth wonder of the world," stating, "He who understands it, earns it... he who doesn't... pays it." The Compound Interest Calculator demonstrates this phenomenon in detail.
Compounding occurs when the interest you earn is added to your principal, and then that new total earns even more interest. This snowball effect is the primary engine of wealth creation for retirees and the main reason why debt can spiral out of control so quickly.
When to Use This Calculator
Use the Compound Interest Calculator to:
- Compare Frequency: See how much more you earn if interest is compounded monthly vs. annually.
- Visualize Time: Understand why starting to save at age 25 vs 35 makes a massive difference in your final outcome.
Example Scenario
Let's compare compounding frequencies on a $10,000 investment at 8% for 20 years.
- Annual Compounding: Final Value = $46,609
- Daily Compounding: Final Value = $49,521
Just by changing the frequency to daily, you earn nearly $3,000 extra without lifting a finger.
Formula & Calculation Method
Formula Used
Variable Explanation
- FV: Future Value
- P: Initial Principal
- c: Monthly Contribution
- r: Monthly Interest Rate
- n: Total Number of Months
Step-by-Step Calculation
- 1. Calculate the growth of the initial principal using compound interest.
- 2. Calculate the future value of the series of monthly contributions.
- 3. Sum both values to find the total Future Value.
- 4. Subtract the total principal invested to find the Total Interest Earned.
Interpretation Notes
This assumes interest is compounded monthly and contributions are made at the end of each month. Actual returns will vary with market performance.
How to Interpret the Results
Focus on the Growth Curve. A compound interest chart should curve upward like a hockey stick. If it looks like a straight line, you likely have a low interest rate or a short time horizon.
Common Mistakes
Forgetting Contributions: This calculator often assumes a lump sum. If you are adding money monthly, ensure you use the "Additional Deposits" field if available, or switch to the Investment Calculator.