Compound Interest
Future value with compounding
About This Calculator
Compound interest is often called the eighth wonder of the world because your earnings generate their own earnings over time. Unlike simple interest — calculated only on the principal — compound interest grows exponentially, making it extremely powerful for long-term investments and equally dangerous for debt left unpaid.
Formula
A = P × (1 + r/n)^(n × t)
A = future value, P = principal, r = annual interest rate (decimal), n = times compounded per year (12 = monthly, 365 = daily), t = years. For continuous compounding: A = P × e^(r × t).
Example Calculation
$10,000 invested at 7% annual interest, compounded monthly for 10 years.
- r = 0.07, n = 12, t = 10
- A = 10,000 × (1 + 0.07/12)^(12×10)
- A = 10,000 × (1.005833)^120
- A = 10,000 × 2.00968 = $20,096.80
Your $10,000 grows to $20,096.80 — you earned $10,096.80 in interest
Growth of $10,000 (compounded monthly)
| Rate | 5 Years | 10 Years | 20 Years | 30 Years |
|---|---|---|---|---|
| 3% | $11,616 | $13,494 | $18,208 | $24,568 |
| 5% | $12,834 | $16,470 | $27,126 | $44,677 |
| 7% | $14,176 | $20,097 | $40,387 | $81,165 |
| 10% | $16,453 | $27,048 | $73,161 | $197,393 |
Frequently Asked Questions
What is the difference between compound and simple interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus all previously earned interest, producing exponential growth over time.
How often should interest compound for maximum growth?
The more frequently interest compounds, the more you earn. Daily compounding yields slightly more than monthly, which yields more than annual — but the difference between daily and monthly is very small in practice.
What is the Rule of 72?
Divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 7% interest, your money doubles in roughly 72 ÷ 7 ≈ 10.3 years.
Does compound interest work against me for debt?
Yes — credit card debt compounds (usually daily), so unpaid balances grow rapidly. A $5,000 balance at 20% APR compounds to over $6,000 in just one year if no payments are made.