Compound Interest Calculator

What is Compound Interest?

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously-accumulated interest.

Albert Einstein reportedly called compound interest the "eighth wonder of the world." Its power lies in its ability to accelerate the growth of your money over time.

How to Use This Compound Interest Calculator

1. Initial Deposit: Enter the starting amount of money you have to invest.
2. Monthly Contribution: Add the amount you plan to save or invest regularily each month.
3. Annual Interest Rate: Input your expected annual rate of return (e.g., 7% for stock market average).
4. Years to Grow: Set the duration for your investment to compound.

The Compound Interest Formula

The formula for annual compound interest, including monthly contributions, is complex, but the basic concept is:

$$ A = P \left(1 + \frac{r}{n}\right)^{nt} $$

Where:

• A = the future value of the investment/loan, including interest
• P = the principal investment amount
• r = the annual interest rate (decimal)
• n = the number of times that interest is compounded per unit t
• t = the time the money is invested for

Example Calculation

Imagine you invest $5,000 today and contribute $200 every month for 20 years at an average return of 8%.

• Principal Invested: $53,000
• Interest Earned: ~$76,000
• Total Value: ~$129,000

The interest earned is more than your total contributions! This illustrates the exponential power of time and consistency.

Disclaimer: This calculator is for illustrative purposes only. Actual investment returns are not guaranteed and can vary significantly based on the type of investment, market conditions, and other factors. It is not financial advice. Consult with a qualified financial advisor before making any investment decisions.