Your Investment Projection
Future Value
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Total Contributions
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Total Interest Earned
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What Is Compound Interest and How Does It Work?
Compound interest is the eighth wonder of the world, and it's the secret sauce to building long-term wealth. Unlike simple interest, which is calculated only on the initial amount you invest (the principal), compound interest is calculated on the principal *and* all the accumulated interest. In short, it’s "interest on your interest," and it creates a snowball effect that can dramatically grow your savings over time.
This compound interest calculator helps you visualize this powerful concept. By entering your initial investment, your regular monthly contributions, your expected annual interest rate, and how long you plan to invest, you can see a clear projection of your financial future. The most important variable in this equation is **time**. The longer your money has to grow, the more significant the impact of compounding becomes. Starting early, even with small amounts, can lead to staggering results compared to starting later with larger sums.
Use this tool as your personal savings planner. Experiment with the numbers to see how different scenarios play out. What if you contribute $50 more each month? What if you find an investment with a 1% higher return? The year-by-year breakdown below will show you exactly how your principal contributions and interest earnings build on each other, turning your consistent savings into a substantial nest egg.
Year-by-Year Growth
| Year | Starting Balance | Contributions | Interest Earned | Ending Balance |
|---|---|---|---|---|
| Enter your investment details above and click "Calculate" to see your growth schedule. | ||||
Frequently Asked Questions
What exactly is compound interest?
Compound interest is the interest you earn on both your original investment (the principal) and the interest that investment has already earned. It's "interest on interest," which is why your money can grow exponentially over time.
How does this calculator work?
Our calculator applies the compound interest formula on a monthly basis. It adds your monthly contribution to the balance, then calculates the interest earned for that month, and adds that new interest to the balance. This process is repeated for the entire investment term.
Does this calculation include taxes or fees?
No. This is a simplified projection. It does not account for any taxes on capital gains or dividends, nor does it factor in potential management fees, trading costs, or inflation. The actual return on your investments may be lower.
What's more important: a higher interest rate or a longer time?
While both are important, **time** is often the most powerful factor in compound interest. As you can see from the calculator, the growth in later years is significantly larger than in the early years. This is why financial experts always advise starting to save as early as possible.