Compound Interest Calculator
This calculator lets you see how your investment will grow thanks to compound interest. Simply enter your initial deposit, monthly contribution, expected annual return, and investment period — the result is displayed instantly in the chart and table.
What is compound interest?
Compound interest is the principle where interest is calculated not only on the original deposit but also on previously accumulated interest. Unlike simple interest, where interest is always calculated on the same base amount, with compound interest the base grows continuously. The longer the time horizon, the more pronounced the difference between the two approaches becomes.
It is often called the "eighth wonder of the world" — precisely because the growth is exponential in nature. In the early years the effect is barely noticeable, but over time it plays an increasingly significant role.
How compound interest works in practice
Imagine a one-time deposit of $5,000 with an annual return of 7%. After the first year, $350 is added — totaling $5,350. In the second year, interest is calculated on $5,350, so $374.50 is added. Each subsequent year the base increases and the increments grow.
If regular monthly contributions (e.g., $200) are added to the initial deposit, the effect multiplies. Over 20 years at 7% return, total deposits reach just under $53,000, but the final value exceeds $125,000 — the difference is generated by interest on interest.
The compound interest formula
The basic formula for a lump-sum deposit:
FV = PV × (1 + r)ⁿ
- FV — future value of the investment
- PV — initial deposit (present value)
- r — interest rate per period
- n — number of periods
For regular contributions, the annuity formula is added: FV = PMT × ((1 + r)ⁿ − 1) / r, where PMT is the regular payment. The calculator above uses monthly compounding and contribution frequency.
The Rule of 72
A quick way to estimate how many years it takes for an investment to double. Simply divide 72 by the annual interest rate. At a 6% annual return, the investment doubles in approximately 12 years (72 ÷ 6 = 12). At 8%, in 9 years. It is an approximate estimate, but very useful for quick reference.
Compounding frequency
The final value also depends on how often interest is credited. The more frequent the compounding (annually, quarterly, monthly, daily), the higher the final return at the same nominal rate. The calculator above uses monthly compounding, which corresponds to common practice for most investment products.
Key factors affecting the result
The greatest impact on the final value comes from the length of the investment horizon. In the context of compound interest, time is more important than the size of individual contributions. Other factors include contribution regularity, the interest rate level, and the compounding frequency.
It is also important to distinguish between nominal and real returns. The nominal return is the figure shown by the investment product. The real return accounts for inflation — if the nominal return is 7% and inflation is 3%, the real return is approximately 4%. The calculator works with nominal returns.
What the calculator does not account for
The calculator provides an approximate estimate under idealized conditions. It does not account for:
- Inflation — the real purchasing power of the final amount will be lower
- Taxes — in the US, investment gains are subject to capital gains tax (rates vary by holding period and income)
- Fees — fund management fees, transaction costs, and other charges reduce the net return
- Market volatility — actual returns are not constant and may be significantly higher or negative in individual years
- Currency risk — for investments in foreign currencies, exchange rate movements also affect the outcome
For more accurate planning, it is advisable to consult your specific situation with a financial advisor.
