Compound Interest Calculator
See how your money grows with compound interest over time, with different compounding frequencies.
The Power of Compound Interest
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Albert Einstein reportedly called it the "eighth wonder of the world."
The Formula
A = P × (1 + r/n)nt
Where: A = final amount, P = principal, r = annual interest rate (decimal), n = number of times compounded per year, t = number of years.
Compounding Frequency Comparison
| Frequency | n | $10,000 at 7% for 10 years |
|---|---|---|
| Annually | 1 | $19,672 |
| Quarterly | 4 | $20,016 |
| Monthly | 12 | $20,097 |
| Daily | 365 | $20,138 |
More frequent compounding yields higher returns, though the difference diminishes. The key factor is time: starting early makes a dramatic difference due to exponential growth.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus accumulated interest, causing exponential growth over time.
How often should interest be compounded?
More frequent compounding earns slightly more. Most savings accounts compound daily, while many investments compound monthly or quarterly. The difference between monthly and daily compounding is small.
What is the effective annual rate (EAR)?
The EAR is the actual annual return after accounting for compounding. A 7% rate compounded monthly has an EAR of about 7.23%, meaning you effectively earn 7.23% per year.