Compound Interest Calculator
See the power of compound interest in action. Enter your initial investment, monthly contributions, and watch your wealth grow over time.
Compound interest is one of the most powerful forces in finance - often called the "eighth wonder of the world." This calculator shows how your investments can grow exponentially when earnings generate their own earnings. Whether you're planning for retirement, saving for a major purchase, or building an emergency fund, understanding compound growth helps you make smarter financial decisions and reach your goals faster.
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Understanding Compound Interest
What is Compound Interest?
Compound interest is when you earn interest not only on your initial investment, but also on the accumulated interest from previous periods. This creates exponential growth over time.
Albert Einstein allegedly called compound interest "the eighth wonder of the world" because of its powerful wealth-building potential.
Tips for Maximizing Growth
- • Start investing as early as possible
- • Make regular monthly contributions
- • Reinvest all dividends and interest
- • Choose investments with higher returns
- • Be patient and let time work for you
Frequently Asked Questions
What is compound interest and how does it work?
Compound interest is "interest on interest." Your initial investment earns returns, and those returns also earn returns. Over time, this compounding effect can dramatically increase your wealth, especially with regular contributions.
How often should interest compound for best results?
More frequent compounding is better, but the difference diminishes at higher frequencies. Daily compounding is only slightly better than monthly. Most investments compound monthly or quarterly, which provides excellent growth.
What's a realistic rate of return to use?
For conservative estimates, use 6-7% for diversified stock investments, 3-4% for bonds, or 4-5% for balanced portfolios. The S&P 500 has averaged about 10% annually over long periods, but use conservative estimates for planning.
Is it better to invest a lump sum or make regular contributions?
Mathematically, investing a lump sum earlier is often better due to more time in the market. However, regular contributions through dollar-cost averaging can reduce risk and is more realistic for most people's cash flow.
How much should I contribute monthly for retirement?
A common rule is to save 15-20% of your income for retirement. Start with whatever you can afford and increase gradually. Even $100-200 monthly can grow significantly over decades due to compound interest.
Does compound interest work with debt too?
Unfortunately, yes. Credit card debt compounds against you, which is why high-interest debt should be paid off quickly. The same math that makes compound interest great for investing makes debt expensive when you're paying it.
When should I start investing to take advantage of compounding?
The earlier, the better. Starting at 25 vs 35 can result in hundreds of thousands more at retirement due to the extra 10 years of compounding. Even small amounts in your 20s can outperform larger amounts started later.
What investments offer the best compound growth?
Diversified stock market investments (index funds, ETFs) historically offer the best long-term compound growth. Real estate, dividend-paying stocks, and reinvested mutual funds also benefit from compounding effects.