Compound Interest Calculator
See how a lump sum grows over time with annual, semi-annual, monthly, or daily compounding. Includes a full year-by-year breakdown so you can see the compounding effect in action.
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only earns on the original principal, compound interest grows exponentially because each period's interest becomes part of the new base for the next period. Einstein is frequently (though probably apocryphally) credited with calling it "the eighth wonder of the world." The effect is most powerful over long time horizons and at high compounding frequencies. A $10,000 investment at 7% compounded monthly for 30 years grows to over $81,000, more than eight times the original principal. The key variables are the rate, the time horizon, and how frequently interest compounds within each year.
Formula
A = P × (1 + r/n)^(n × t)
A = Final amount (principal + interest)
P = Principal (initial investment)
r = Annual interest rate (as a decimal)
n = Compounding periods per year (12 = monthly)
t = Time in years
Interest earned = A - P
Calculator
How to Use
- 1Principal: The amount you invest today. Does not include any future contributions; this calculator models a one-time lump sum.
- 2Annual Rate: The expected annualised return. The S&P 500 has returned roughly 10% nominal (7% real after inflation) historically. Use after-tax returns for taxable accounts.
- 3Compounding Frequency: Monthly is the most common for brokerage accounts. Daily compounding produces slightly higher returns than monthly but the difference is small at typical rates.
- 4Time Horizon: The number of years the money remains invested. Doubling the time horizon dramatically increases the final balance due to the exponential nature of compounding.
Worked Example
Example: $10,000 at 7% for 20 years (Monthly)
Principal
$10,000
Rate
7% / year
Compounding
Monthly
Time
20 years
A = $10,000 × (1 + 0.07/12)^(12 × 20) = $40,170. The original $10,000 principal earned $30,170 in interest (three times the original investment) without any additional contributions. At 30 years the same investment reaches $81,165, illustrating how the compounding effect accelerates dramatically over time.
Use a Company's Historical Return as Your Rate
Beat Index members can pull a stock's CAGR from EDGAR filings to use as the growth rate input.