Compound Interest Calculator
Calculate compound interest and final balance. See how your investment or debt grows over time with the power of compounding.
How to calculate Compound Interest
Compound interest is one of the most powerful forces in personal finance. Unlike simple interest — which is calculated only on the principal — compound interest is calculated on both the principal and the accumulated interest, causing your money to grow exponentially.
The formula is A = P(1 + r/n)^(nt), where P is the principal, r is the annual interest rate as a decimal, n is the number of times interest compounds per year, and t is the time in years.
For example, $10,000 invested at 7% annual interest compounded monthly for 10 years grows to $20,097 — more than doubling without adding a cent.
The frequency of compounding matters significantly. Daily compounding yields slightly more than monthly, which yields more than annual. Most savings accounts compound daily; bonds often pay annually.
Compound interest works against you too — credit card debt compounds monthly, which is why balances grow so rapidly when only minimum payments are made. Understanding this formula is essential to any sound financial decision, from evaluating savings accounts to comparing loan offers.