Compound Interest Calculator
Enter principal, monthly contributions, and expected return to project long-term growth with compound interest.
Compounds monthly: interest is applied first, then that month's contribution is added. For planning purposes only, not investment advice.
How is compound interest calculated?
The core idea behind compound interest is that interest earned in each period gets added to the principal, so the next period's interest is calculated on the new, larger balance. This makes growth accelerate over time rather than staying linear — often called "interest on interest."
For example, a $10,000 principal at a 6% annual return, left untouched for 20 years, grows to roughly $32,700. Add a $500 monthly contribution on top, and the final balance grows dramatically higher — that's the combined power of regular contributions and compounding.
The "Rule of 72" shortcut
Before reaching for a calculator, investors often use the Rule of 72 to estimate doubling time: divide 72 by the annual return rate to get roughly how many years it takes an investment to double. At 6% annual return, money doubles in about 12 years (72 ÷ 6); at 9%, that shrinks to 8 years. It's not exact, but it's a fast mental gut-check before diving into precise projections.
What's a reasonable annual return rate to assume?
It depends on your investment type and risk tolerance. Savings accounts and bond funds typically return 2-4% annually; broad market index funds (tracking the S&P 500, for example) have historically averaged around 6-10% annually over the long run — though past performance never guarantees future results, and actual investments carry risk of loss.
Why does starting early matter so much?
Compounding needs time to really take off — the longer your money is invested, the more dramatic the acceleration. Someone who starts investing a fixed monthly amount at age 20 often ends up with more than someone who starts at 30, even with a smaller total amount contributed, simply because they had 10 extra years of compounding. Time is widely considered the single most important variable in compound growth.