Finance

Compound Interest Calculator

See how your money grows over time with the power of compound interest.

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The Power of Compound Interest

Albert Einstein reportedly called compound interest the "eighth wonder of the world." Whether he said it or not, the math backs it up: $10,000 invested at 8% annual return becomes $46,610 after 20 years — not through any extra contributions, purely through compounding. Start 10 years earlier and it becomes $100,627.

Compound Interest vs Simple Interest

With simple interest, you earn interest only on your original principal. With compound interest, you earn interest on your principal AND on the interest you've already earned. Over long periods, this difference is enormous. A $10,000 deposit at 8% simple interest earns $8,000 over 10 years. At 8% compound interest (annually), it earns $11,589 — and the gap widens every year.

How Compounding Frequency Affects Growth

The more frequently interest compounds, the faster your money grows. Daily compounding beats monthly, which beats annual. In practice, the difference between daily and monthly compounding is small — a few dollars per year on typical savings. The frequency matters far less than the interest rate and how long you leave the money invested.

The Rule of 72

Divide 72 by your annual interest rate to estimate how many years it takes for money to double. At 8% return: 72 ÷ 8 = 9 years to double. At 6%: 12 years. At 12%: 6 years. This simple mental math helps you instantly gauge the power of different investment rates.

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Frequently Asked Questions

What is a realistic compound interest rate to expect?

The S&P 500 has historically returned about 10% annually before inflation (7% after inflation) over long periods. High-yield savings accounts currently offer 4–5%. CDs offer 4–5.5%. For long-term wealth building, broad stock market index funds have historically been the highest-returning accessible investment.

How does compound interest work in a savings account?

Banks calculate interest on your balance daily or monthly and add it to your account. That added interest then earns interest in future periods. High-yield savings accounts compound daily and pay monthly. The APY (Annual Percentage Yield) already accounts for compounding, so use APY — not APR — when comparing accounts.

Does compound interest work against you with debt?

Yes — and it's devastating. Credit cards charge compound interest on unpaid balances, typically at 20–29% APR. A $5,000 credit card balance at 24% APR, with only minimum payments, takes over 15 years to pay off and costs nearly $8,000 in interest. Paying off high-interest debt is often the best guaranteed "investment" you can make.

What is the difference between APR and APY?

APR (Annual Percentage Rate) is the simple interest rate before compounding. APY (Annual Percentage Yield) is the effective rate after compounding is factored in. For savings, APY is what you actually earn. For loans, APR is usually quoted — but the effective cost is higher due to compounding. Always compare like with like.