Compound Interest Calculator


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What is compound interest?

Compound interest is a very simple, yet very powerful concept. It represents cumulative growth of the initial savings with interests accumulated over time.
 
The idea of “interests on the interests” is the basis for most popular financial products, like saving accounts, deposits etc. Thanks to this a small capital can grow over time to a really big value. 
 

Take a look at this sample compound interest chart which represents cumulative growth of $1000 over 30 years with a 10% interest rate.

cumulative growth of $1000 over 30 years with 10% interest rate

How to calculate compound interest?

The value of compound interest can be calculated using the following standard formula 

A = P(1+r/n)(nt)

Where:

  • A = the future value of initial amount

  • P = the initial amount

  • r = the annual interest rate as decimal number

  • n = the number of times that interest is compounded per year

  • t = the number of years the money is invested for. (If you wish for shorter period you can substitute 1/12 for one month)

As a result of this formula you will receive the final value of your investment with all accumulated interests. 
 
If you would like to calculate the exact value of the accumulated interest you can simply subtract the initial amount from this result.
 

According to the above formula the future value depends on:

  • time of investment

  • interest rate

  • total number of compounding periods

  • initial amount

Of course a manual calculation using this formula is a very daunting and time-consuming task. That's why we created this free online calculator.

Using this interest calculator

If you wish to find the future value of your deposit or any other investment, simply fill  in the form above and click the button Calculate.

Initial Investment

The starting value of your deposit. The results are presented in US dollars, but in fact it does not have any impact on the calculated values. So you can use it for Euro, Yen, Swiss Franc and any other currency.

Interest Rate

Annual value of the interest rate of your investment.

Time period

How long you plan to keep your deposit.

Compounding

How often the accumulated interests are added to the base of the future accrual of interest. The more frequent the compounding the bigger the growth of the future value. 

Tax rate

The value of income tax in your country.

 

Our tool not only makes it very easy to calculate compound interest but also adds many useful features.

  • Calculating the income tax 

  • Calculation the impact of inflation

  • Detailed compounding table

  • Colorful charts and detailed tables

Compound interest example

To better illustrate the power of compounding interest, we prepared the simulation of growth of initial amount of $100000 over 30 years on 10% per year. 

In order to demonstrate a more real life scenario we use monthly compounding of interest because it is standard in most banks. 

 

cumulative growth of $100000 over 30 years with 10% interest rate

Year Initial amount Interests Final amount
1 $100 000 $10 471 $110 471
2 $110 471 $11 568 $122 039
3 $122 039 $12 779 $134 818
4 $134 818 $14 117 $148 935
5 $148 935 $15 595 $164 531
6 $164 531 $17 229 $181 759
7 $181 759 $19 033 $200 792
8 $200 792 $21 026 $221 818
9 $221 818 $23 227 $245 045
10 $245 045 $25 659 $270 704
11 $270 704 $28 346 $299 050
12 $299 050 $31 314 $330 365
13 $330 365 $34 594 $364 958
14 $364 958 $38 216 $403 174
15 $403 174 $42 218 $445 392
16 $445 392 $46 638 $492 030
17 $492 030 $51 522 $543 552
18 $543 552 $56 917 $600 469
19 $600 469 $62 877 $663 346
20 $663 346 $69 461 $732 807
21 $732 807 $76 735 $809 542
22 $809 542 $84 770 $894 311
23 $894 311 $93 646 $987 958
24 $987 958 $103 452 $1 091 410
25 $1 091 410 $114 285 $1 205 695
26 $1 205 695 $126 252 $1 331 946
27 $1 331 946 $139 472 $1 471 419
28 $1 471 419 $154 077 $1 625 495
29 $1 625 495 $170 211 $1 795 706
30 $1 795 706 $188 034 $1 983 740

 

 

Key takeaways from this chart:

  1. With a 10% interest rate the value of the investment doubles every 7 years.

  2. Over time compound interest grows at an ever increasing rate. Each subsequent period gives you a higher return.

  3. It takes 7 years to earn the first 100k of interest, but earning the final 100k takes only 7 months.

Real life applications of compound interest

Below you will find examples of investments using this idea. In fact compound interest is the root of every financial asset.


 

Certificates of deposit

This is the most basic example. Your deposit will grow in value according to your interest rate. 

Saving accounts

Saving accounts are also very intuitive examples, and what's more  this kind of financial instrument allows you to add extra deposits whenever you want. Such extra payments add some complexity to the calculations, but you can evaluate it using our saving calculator.

Stocks

Stocks are another real-life example of the power of compound interest. Of course when buying stock there is no  fixed interest rate, but since most companies grow over time, their stock grows in value accordingly. 

Index and mutual funds

Managed funds grow in value in a similar manner as well.  Interest rates may vary and as in the case of stock there might be periods of negative returns, but over a long period of time, the idea still applies.

Complex Portfolios

When forecasting possible return rates of portfolios composed of different classes of assets, you may use a compound interest formula with an assumed average annual return rate.  

Inflation

This is an example of compound interest with a negative interest rate.  

FAQ

What is a compounding frequency?

While your savings can generate interest every day, most financial instruments add earned interests to the account balance at fixed periods — for example every month. This is called compounding frequency. The most common cases are:

  • daily compounding

  • monthly compounding

  • quarterly compounding

  • yearly compounding

The more often your interests are compounded the more profit you gain, because each penny will start working for you sooner. 

What is the effective annual interest rate?

Effective annual interest rate represents the actual interest rate including compounding frequency. If the accrual of interest takes place more often than once per year the actual interest rate is higher than the nominal interest rate.

 
 
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