Guide
How Compound Interest Works (and How to Project Investment Growth)
Understand the compound interest formula, how compounding frequency and regular contributions affect growth, and how to project future value.
Compound interest is interest earned on both the original principal and the interest that has already accrued. It is the engine behind long-term investing, and a compound interest calculator projects how a sum grows over time.
The compound interest formula
A = P × (1 + r/n)^(n × t)
Where A is the future value, P is the principal, r is the annual rate, n is the number of compounding periods per year, and t is the number of years. More frequent compounding yields slightly more, and regular contributions supercharge growth.
Compounding frequency and contributions
Annual, monthly, and daily compounding differ less than people expect at moderate rates, but over decades the gap widens. Adding a fixed contribution each month has a far bigger impact than tweaking the compounding frequency, because each contribution itself compounds.
How to use the calculator
- Enter the initial principal.
- Enter the annual interest (or growth) rate.
- Choose the compounding frequency.
- Optionally add a regular contribution and its frequency.
- Enter the time horizon and read the projected future value.
Examples
$10,000 invested at 7% compounded monthly for 30 years grows to about $81,000 with no further contributions. Add $200 per month and the future value jumps to about $293,000 — the contributions, not the initial principal, drive most of the final balance.
When a compound interest calculator is useful
- Projecting retirement or long-term savings growth.
- Comparing investment or savings accounts.
- Seeing the impact of regular contributions.
- Understanding the cost of waiting to start investing.
Put it into practice
Use the Compound Interest / Investment Growth Calculator right now — free, in your browser, no sign-up required.
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