Free Online 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 earns on the principal, compound interest creates a snowball effect where your earnings generate their own earnings. The formula is A = P(1 + r/n)^(nt), where P is principal, r is the annual rate, n is compounding frequency, and t is time in years.

The Rule of 72 is a quick way to estimate how long it takes for an investment to double. Divide 72 by the annual interest rate. For example, at 6% interest, your money doubles in approximately 72 / 6 = 12 years. This rule works best for rates between 6% and 10%.

More frequent compounding produces slightly higher returns because interest is calculated and added to the principal more often. Daily compounding earns more than monthly, which earns more than annually. However, the difference between daily and monthly compounding is usually small for typical interest rates.

Simple interest is calculated only on the original principal: I = P × r × t. Compound interest is calculated on the principal plus accumulated interest. Over long periods, compound interest earns significantly more. For example, $10,000 at 5% for 20 years earns $10,000 with simple interest but $16,533 with annual compounding.

The effective annual rate accounts for compounding frequency to show the true annual yield. A 5% rate compounded monthly has an EAR of about 5.12%. The EAR is always equal to or higher than the stated nominal rate, and the difference grows with more frequent compounding.

Regular contributions dramatically increase your final balance because each deposit starts earning compound interest immediately. For example, $10,000 at 7% for 30 years grows to about $76,123 alone, but adding just $200/month turns it into over $300,000.

Work backward using this calculator: enter your target future value scenario, adjust the monthly contribution until you reach your goal. As a general guideline, financial advisors recommend saving 15-20% of your income for retirement.

This calculator shows nominal returns before taxes and inflation. To estimate real returns, subtract the expected inflation rate (typically 2-3%) from your interest rate. For after-tax returns, the impact depends on your tax bracket and account type (taxable vs. tax-advantaged like 401k or IRA).