Compound Interest Calculator
What is Compound Interest?
Compound interest is the interest on a loan or deposit that is calculated based on both the initial principal and the accumulated interest from previous periods. In essence, it’s interest on interest, which can cause your investment to grow faster than simple interest, where only the principal earns interest.
Compound interest works best when invested over long periods, as the compounding effect accelerates over time. That’s why financial experts recommend starting investments early to maximize returns. Our Compound Interest Calculator can help you see how much your investments will grow with compounding over different time frames.
How to Use a Compound Interest Calculator?
Using a compound interest calculator is a simple yet powerful way to estimate the growth of your investments. Our calculator lets you input the principal amount, interest rate, time period, and even monthly contributions. It also offers options for compounding frequency (annually, quarterly, monthly, or daily), which significantly impacts the growth of your investment.
Here’s how it works:
- Principal Amount: The initial amount of money you are investing.
- Interest Rate: The annual interest rate your investment earns.
- Time Period: The number of years you plan to keep the money invested.
- Compounding Frequency: How often the interest is added to the principal (e.g., annually or monthly).
The Power of Compounding
Compounding is often referred to as the "eighth wonder of the world" due to its potential to significantly boost your investments. With each period, interest is earned on the interest, creating exponential growth. A higher compounding frequency (e.g., monthly vs. annually) will result in more rapid growth.
For example:
- Annually Compounded Interest: will compound once per year.
- Monthly Compounded Interest: compounds 12 times a year, leading to faster growth.