Compound interest is what Einstein reportedly called the eighth wonder of the world. It's the mechanism by which money grows exponentially — because each period's interest is added to the balance and then earns interest itself. This Compound Interest Calculator shows the future value of your savings including a lump-sum start and optional regular contributions.
The compound interest formula
A = P × (1 + r/n)^(n·t)
- A — final amount (future value).
- P — principal (starting amount).
- r — annual nominal interest rate (as a decimal).
- n — number of times interest compounds per year.
- t — time in years.
When you also make regular contributions, add the future-value-of-annuity term: FV = C × ((1 + r/n)^(n·t) − 1) ÷ (r/n), where C is the contribution each period.
Step-by-step example
You deposit 10,000 at 7% annual return, add 200 every month, and leave it for 20 years compounded monthly. r/n = 0.07/12 = 0.00583. n·t = 240. Growth factor ≈ 4.038. Principal grows to 40,387. Contributions grow to 104,185. Total ≈ 144,572 — of which 96,572 is pure interest.
Why time beats rate
Two investors: Alex saves 2,400 a year from age 25 to 35, then stops. Ben saves 2,400 a year from 35 to 65. Both earn 7%. At retirement Alex has ≈ 360k, Ben ≈ 242k. Alex invested 24k versus Ben's 72k — but started ten years earlier. That's compounding.
Where compound interest matters
- Retirement accounts (401(k), IRA, NPS, SIPP).
- Long-term equity index-fund investing.
- High-yield savings accounts and fixed deposits.
- Credit-card balances — compounding works against you here.
Tips and common mistakes
- Start early. A decade of extra compounding usually beats a higher return over fewer years.
- Reinvest all interest and dividends — spending them breaks the compounding chain.
- Watch fees. A 1% expense ratio can eat 25%+ of a 30-year return.
- Inflation-adjust the result. A 7% nominal return with 3% inflation is really 4% real.