See exactly how compound interest grows your money over time. Enter your initial investment, monthly contributions, and interest rate to visualize the power of compounding with interactive charts and detailed breakdowns.
See how compound interest grows your money exponentially over time.
In-Depth Guide
Understand how compound interest works, why Einstein reportedly called it the eighth wonder of the world, and how to harness it for wealth building.
Read Full GuideCompound interest is the most powerful force in personal finance. It's the process where your investment returns generate their own returns, creating exponential growth over time. Understanding compound interest is essential for making smart financial decisions about savings, investments, and retirement planning.
The compound interest formula is: A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest compounds per year, and t is time in years. With monthly contributions, the formula becomes more complex, but the principle remains: your earnings earn earnings.
Consider two investors: Alice starts investing $500/month at age 25 and stops at 35 (10 years, $60,000 total). Bob starts at 35 and invests $500/month until 65 (30 years, $180,000 total). At 7% annual return, Alice ends up with approximately $602,000 at age 65, while Bob has about $567,000. Alice invested one-third the money but ended up with more — that's the power of compounding over time.
The more frequently your interest compounds, the more you earn. Banks and investment accounts typically compound daily or monthly. The difference between annual and daily compounding on $100,000 at 7% over 30 years is approximately $17,000 — significant money that accumulates simply from more frequent compounding cycles.
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which only earns interest on the original amount), compound interest creates a snowball effect where your earnings generate their own earnings. This is why Albert Einstein reportedly called it "the eighth wonder of the world." For example, $10,000 at 7% simple interest earns $700/year ($7,000 over 10 years), while compound interest earns $9,672 over the same period.
The more frequently interest compounds, the more you earn. Daily compounding produces slightly more than monthly, which produces more than quarterly, which produces more than annual compounding. For example, $10,000 at 7% annual rate: annually compounded = $10,700, quarterly = $10,719, monthly = $10,723, daily = $10,725 after one year. While the differences seem small in one year, they compound significantly over decades.
The Rule of 72 is a quick way to estimate how long it takes for your money to double. Simply divide 72 by your annual interest rate. At 7% return, your money doubles in approximately 72 ÷ 7 = 10.3 years. At 10%, it doubles in about 7.2 years. At 3%, it takes about 24 years. This rule works for any fixed rate of return and is widely used by financial professionals for quick mental calculations.
APR (Annual Percentage Rate) is the stated annual interest rate without accounting for compounding. APY (Annual Percentage Yield), also called the Effective Annual Rate (EAR), includes the effect of compounding and represents the actual return you earn in a year. A 7% APR compounded monthly yields an APY of 7.23%. Our calculator shows both rates so you can understand the true impact of compounding on your returns.
The amount depends on your time horizon and expected return. At a 7% annual return compounded monthly: starting from $0, you would need approximately $1,920/month for 20 years, $820/month for 30 years, or $381/month for 40 years to reach $1 million. The key takeaway: the earlier you start, the less you need to invest each month. Time is the most powerful factor in compound growth.
It depends on your investment type. The S&P 500 has historically returned about 10% annually (7% after inflation). High-yield savings accounts offer 4-5% in 2026. Bonds typically return 3-5%. For conservative long-term planning, many advisors recommend using 6-7% (accounting for inflation). Our calculator defaults to 7%, which represents a reasonable long-term stock market return after inflation.
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