Compound Interest Calculator
See how your investments grow with compound interest. Add monthly contributions, compare compounding frequencies, and understand the formula step-by-step.
Compound Interest Calculator
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Understanding Compound Interest
Compound interest is often called “the eighth wonder of the world” because of its powerful wealth-building potential. Unlike simple interest, compound interest earns interest on your interest.
The key to maximizing compound interest is time. The longer your money compounds, the more dramatic the growth. Starting early, even with small amounts, can lead to significant wealth over decades.
The Compound Interest Formula
Key Concepts
Rule of 72
Years to double = 72 ÷ Interest Rate
At 6%: 72/6 = 12 years to double
At 12%: 72/12 = 6 years to double
Compounding Frequency Impact
Daily > Monthly > Quarterly > Annual
More frequent = higher effective rate
Difference grows with time & rate
Power of Regular Contributions
£100/month at 7% for 30 years = £121,997
You contributed only £36,000
Interest earned: £85,997 (238% return)
Simple vs Compound Interest
£10,000 at 5% for 20 years:
• Simple interest: £20,000 (doubled)
• Compound interest: £26,533 (165% more)
Compound interest earned £6,533 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. You earn "interest on your interest."
What is the compound interest formula?
A = P(1 + r/n)^(nt), where P is principal, r is annual rate (decimal), n is compounding frequency, and t is time in years.
What is the Rule of 72?
A quick way to estimate how long to double your money: Years = 72 / Interest Rate. At 8% interest, your money doubles in about 9 years.
How does compounding frequency affect returns?
More frequent compounding means slightly higher returns. Daily compounding beats monthly, which beats annual. The difference is more significant at higher rates.
What is effective annual rate (EAR)?
The EAR shows the true annual return when interest compounds multiple times per year. It's always higher than the nominal rate for non-annual compounding.
Why are monthly contributions powerful?
Each monthly contribution also earns compound interest, leading to exponential growth. Regular small contributions can outperform larger one-time investments.
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