Compound Interest Calculator

Compound interest is the interest earned on both your initial principal and the accumulated interest from previous periods. Often called "interest on interest," it's the single most powerful force in long-term wealth building.

How compound interest works: Unlike simple interest (calculated only on the principal), compound interest grows exponentially. Each compounding period, your earned interest is added to the principal, creating a larger base for the next interest calculation. Over decades, this snowball effect can turn modest savings into substantial wealth.

The Rule of 72: A quick mental shortcut — divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 7% returns, your money doubles roughly every 10.3 years. At 10%, every 7.2 years.

Why starting early matters: Time is the most important ingredient. Someone who invests $200/month from age 25 to 35 (10 years, $24,000 total) and then stops will have MORE money at 65 than someone who starts at 35 and invests $200/month for 30 years ($72,000 total) — assuming the same 7% return. The earlier investor contributed three times less but ends up wealthier, thanks to decades of compounding.

Compounding frequency matters — but less than you think: Daily compounding produces slightly more than annual compounding, but the difference on a $10,000 investment at 7% over 20 years is only about $200. The real growth driver is your rate of return and time in the market.

The impact of inflation: A dollar today is worth more than a dollar in 20 years. At 3% inflation, $100,000 in today's dollars is equivalent to only about $55,000 in purchasing power after 20 years. Always consider inflation-adjusted (real) returns when planning long-term.

Compound interest on debt: The same force that grows wealth can grow debt. Credit card interest compounds, meaning unpaid interest gets added to your balance and accrues more interest. A $5,000 balance at 20% APR with minimum payments can take over 30 years to pay off and cost more than $10,000 in interest.