What is compound interest?

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, it grows exponentially over time, which Einstein reportedly called the eighth wonder of the world.

How is compound interest calculated?

The formula is A = P(1 + r/n)^(nt), where P is principal, r is annual interest rate (decimal), n is compounding frequency per year, and t is time in years. The result A is the final amount including interest.

What is the difference between compound and simple interest?

Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus all previously earned interest. Over time, compound interest grows significantly faster.

How often should interest compound for maximum growth?

The more frequently interest compounds, the more you earn. Daily compounding yields slightly more than monthly, which yields more than annual. However, the difference between daily and monthly compounding is small.

What is the Rule of 72?

The Rule of 72 is a quick mental math shortcut: divide 72 by your annual interest rate to estimate how many years it takes to double your investment. At 8% annual return, your money doubles in approximately 9 years (72 ÷ 8 = 9).

How does monthly contribution affect compound interest?

Regular contributions dramatically accelerate growth due to dollar-cost averaging and compounding. Even small monthly additions significantly outperform a one-time lump sum over long periods.

What is the effective annual rate (EAR)?

EAR is the actual annual return accounting for compounding within the year. It is always higher than the nominal rate for any compounding frequency greater than annual. Formula: EAR = (1 + r/n)^n − 1.

Free Compound Interest Calculator Online

See how your money grows with compound interest. Add monthly contributions, choose any compounding frequency, and compare against simple interest with a live chart and a full year-by-year breakdown.

Principal amount

Annual interest rate (%)

Time period

Unit

Compound frequency

Monthly contribution

Currency

Final balance

—

Principal invested: —
Total contributions: —
Total interest earned: —
Interest % of balance: —
Effective annual rate: —

Growth chart

CompoundSimple

Formula

Year-by-year breakdown

Year	Start	Interest	Contributions	End

Compared to simple interest

If you had used simple interest instead, your balance would be —. Compounding earns you an extra —.

Frequently Asked Questions

What is compound interest?: Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, it grows exponentially over time, which Einstein reportedly called the eighth wonder of the world.
How is compound interest calculated?: The formula is A = P(1 + r/n)^(nt), where P is principal, r is annual interest rate (decimal), n is compounding frequency per year, and t is time in years. The result A is the final amount including interest.
What is the difference between compound and simple interest?: Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus all previously earned interest. Over time, compound interest grows significantly faster.
How often should interest compound for maximum growth?: The more frequently interest compounds, the more you earn. Daily compounding yields slightly more than monthly, which yields more than annual. However, the difference between daily and monthly compounding is small.
What is the Rule of 72?: The Rule of 72 is a quick mental math shortcut: divide 72 by your annual interest rate to estimate how many years it takes to double your investment. At 8% annual return, your money doubles in approximately 9 years (72 ÷ 8 = 9).
How does monthly contribution affect compound interest?: Regular contributions dramatically accelerate growth due to dollar-cost averaging and compounding. Even small monthly additions significantly outperform a one-time lump sum over long periods.
What is the effective annual rate (EAR)?: EAR is the actual annual return accounting for compounding within the year. It is always higher than the nominal rate for any compounding frequency greater than annual. Formula: EAR = (1 + r/n)^n − 1.