Compound Interest Calculator
Compound Interest Calculator
See how your money grows over time with the power of compounding. Enter your initial investment, monthly contributions, interest rate, and compounding frequency to project your future wealth and total interest earned.
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INSTRUCTIONS
How to Use This Calculator
1. Enter Principal
Input your starting investment amount. This is the lump sum you already have or plan to deposit upfront.
2. Set Contributions
Enter the amount you plan to add each month. Consistent contributions dramatically increase your final balance over time.
3. Choose Rate & Frequency
Set your expected annual return and how often interest compounds. More frequent compounding yields slightly higher returns.
4. Review Growth
See your future value, total contributions, interest earned, and effective annual rate update instantly as you adjust inputs.
EDUCATION
Understanding Compound Interest
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal, compound interest allows your money to grow exponentially over time. This is why Albert Einstein reportedly called it the eighth wonder of the world.
The formula for compound interest is: A = P(1 + r/n)^(nt), where A is the future value, P is the principal, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years. When regular contributions are added, the future value of those contributions is calculated separately using an annuity formula and added to the compounded principal.
The effective annual rate (EAR) shows the true annual return when compounding is taken into account. For example, a 12% annual rate compounded monthly produces an EAR of 12.68%, because each month's interest earns interest in subsequent months. Daily compounding pushes this slightly higher to 12.75%. The more frequently interest compounds, the faster your money grows.
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