Compound interest is often called the eighth wonder of the world—and for good reason. While most people understand interest (earning money on your savings), few truly grasp how compound interest works: earning interest on your interest. Start with $10,000 in savings earning 5% annually, and you earn $500 in year one. In year two, you don't just earn 5% on the original $10,000—you earn 5% on $10,500. Year three, it's 5% on $11,025. This snowball effect accelerates over time, and over 30 years, that $10,000 becomes $43,219. The longer your money sits in an interest-bearing account, and the more regularly you add to it, the more powerful compounding becomes.
Most people underestimate the impact of compound interest on long-term wealth building. Putting $200/month into a savings account or investment earning 6% annually grows to over $100,000 in 20 years—not because you saved aggressively, but because interest on interest accelerated the growth. This calculator reveals the exact trajectory of your savings: starting amount, monthly contributions, interest rate, compounding frequency (daily, monthly, annually), and time horizon. Adjust any variable and watch the final amount change instantly. Export the year-by-year breakdown to a spreadsheet to track your progress or share your financial plan with a financial advisor.
Whether you're saving for retirement, an emergency fund, a down payment on a home, or any other goal, compound interest is your ally. The earlier you start, and the higher your interest rate, the bigger the snowball. This calculator makes it easy to see the power of starting early and the cost of waiting.
Simple interest vs. compound interest: The real difference
Simple interest is straightforward: earn the same percentage on your principal every year, forever. On $10,000 at 5% simple interest, you earn $500 every single year—$5,000 total after 10 years, ending with $15,000.
Compound interest is explosive: each year, interest is calculated on the growing balance, not just the original amount. On the same $10,000 at 5% compounded annually, after 10 years you have $16,289—$1,289 more than simple interest, and you didn't add anything extra. After 30 years, simple interest gives $25,000, but compound interest gives $43,219. That extra $18,219 came entirely from interest earning interest.
The more frequently interest compounds (daily vs. monthly vs. annually), the faster your money grows—though the difference is surprisingly small. A 5% APR compounded daily yields slightly more than compounded monthly. What matters far more is: the rate itself (5% vs. 7% is huge), the time in the account (30 years beats 10 years), and how much you add regularly.
The real power: regular contributions + compounding
The calculator above assumes you start with an initial amount, but most people's wealth comes from regular contributions. Add $200/month to that $10,000 for 20 years at 5% interest, and you end with $76,481—not just from your $58,000 in deposits, but from $18,481 in interest and compound gains. Extend that to 30 years, and you're looking at $151,283 on just $82,000 in contributions. The extra $69,283 is pure power of time and compounding.
The formula
The future value of a lump sum is:
A = P · (1 + r/n)n·t
- A — final amount
- P — starting principal
- r — annual interest rate (as a decimal)
- n — number of times interest compounds per year
- t — number of years
This calculator also adds the growth of your recurring monthly contributions on top.
Frequently asked questions
What is compound interest?
Compound interest is interest earned on both your original money and on the interest it has already earned. Over time this "interest on interest" effect makes savings grow faster and faster.
Does compounding frequency matter?
Yes, but less than people expect. More frequent compounding (daily vs annually) increases the result slightly; the bigger drivers are the rate, the amount of time, and how much you contribute.
Why are regular contributions so powerful?
Each contribution starts earning its own compound interest, and the earlier you add money the longer it has to grow. Small monthly amounts can become large sums over decades.
Is the result guaranteed?
No. The calculator assumes a constant rate of return. Real investments fluctuate, so treat the figure as a projection, not a promise.
Projections only, not financial advice.
