Compound Interest Calculator
Calculate compound interest with year-by-year growth and chart.
Growth Over Time
| Year | Opening | Interest | Closing |
|---|---|---|---|
| 1 | $10,000.00 | $722.90 | $10,722.90 |
| 2 | $10,722.90 | $775.16 | $11,498.06 |
| 3 | $11,498.06 | $831.20 | $12,329.26 |
| 4 | $12,329.26 | $891.28 | $13,220.54 |
| 5 | $13,220.54 | $955.71 | $14,176.25 |
| 6 | $14,176.25 | $1,024.80 | $15,201.06 |
| 7 | $15,201.06 | $1,098.89 | $16,299.94 |
| 8 | $16,299.94 | $1,178.32 | $17,478.26 |
| 9 | $17,478.26 | $1,263.51 | $18,741.77 |
| 10 | $18,741.77 | $1,354.84 | $20,096.61 |
What Is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," it causes wealth to grow at an accelerating rate. Albert Einstein reportedly called it the "eighth wonder of the world," noting that those who understand it earn it, while those who don't pay it. Unlike simple interest (calculated only on the principal), compound interest makes your money grow exponentially over time.
The Power of Compounding Frequency
The frequency of compounding significantly affects your returns. A $10,000 investment at 10% annual interest over 10 years yields: $25,937 with annual compounding, $26,533 with quarterly, $27,070 with monthly, and $27,179 with daily compounding. The difference between annual and daily compounding over 10 years is $1,242 — and this gap widens dramatically over longer periods and with larger principal amounts.
The Rule of 72
The Rule of 72 is a quick mental math shortcut: divide 72 by the annual interest rate to estimate how many years it takes for your investment to double. At 6% interest, your money doubles in approximately 12 years (72 ÷ 6 = 12). At 9%, it doubles in about 8 years. This rule is remarkably accurate for rates between 4% and 15% and helps you quickly evaluate investment opportunities without a calculator.
Starting Early: Time Value of Money
The most powerful factor in compound interest is time. Consider two investors: Alex starts investing $200/month at age 25 and stops at 35 (10 years, $24,000 total). Beth starts at 35 and invests $200/month until 65 (30 years, $72,000 total). At 8% annual return, Alex ends up with more money at 65 than Beth — despite investing only a third as much. This illustrates why starting early is the single best financial decision for building wealth.
Inflation and Real Returns
Nominal returns (what you see on paper) don't tell the full story. Inflation erodes purchasing power over time. If your investment earns 7% but inflation is 3%, your real return is approximately 4%. When planning long-term investments, always consider real (inflation-adjusted) returns. This is why keeping money in a savings account earning 1-2% actually loses value over time when inflation exceeds the interest rate.