Compound Interest Calculator
Calculate the growth of your investment with periodic contributions, annual interest rate, and different compounding frequencies.
Compound Interest Calculator
What is Compound Interest?
Compound interest is the interest calculated on the initial principal plus all accumulated interest from previous periods. It's considered the 'eighth wonder of the world' by Albert Einstein, as it allows your money to grow exponentially over time.
Unlike simple interest, where you only earn interest on the initial principal, compound interest allows you to earn 'interest on interest.' This creates a snowball effect that significantly accelerates the growth of your investments in the long term.
How to Use This Calculator
- 1.Enter your initial capital: The amount of money you have available to invest now.
- 2.Define your monthly contribution (optional): Amount you plan to add each month to your investment.
- 3.Set the annual interest rate: The percentage of annual return you expect to obtain.
- 4.Select the time period: How many years you plan to maintain the investment.
- 5.Choose the compounding frequency: How often the interest is reinvested (monthly, quarterly, etc.).
What is Compound Interest Calculation Used For?
Investment Planning
Project the growth of your investments in funds, stocks, or savings accounts to reach your financial goals.
Retirement Savings
Calculate how much you need to save monthly to reach your retirement goal with the power of compound interest.
Financial Product Comparison
Compare different investment options with different interest rates and compounding frequencies to make informed decisions.
Personal Financial Education
Understand how time and consistency in your contributions can significantly multiply your wealth.
Practical Example of Compound Interest
Imagine you invest €10,000 initially and add €100 each month for 10 years with an annual interest rate of 7%, compounded monthly:
Initial Capital: €10,000
Monthly Contribution: €100
Annual Interest Rate: 7%
Number of Years: 10
Compounding Frequency: Monthly (12 times per year)
Approximate result: €27,500 in final amount, with more than €10,000 generated just in interest. Your money almost triples thanks to the power of compound interest!
Frequently Asked Questions about Compound Interest
What's the difference between simple interest and compound interest?
Simple interest is calculated only on the initial principal, while compound interest is calculated on the initial principal plus all accumulated interest. This makes compound interest grow exponentially over time, generating significantly higher returns in the long term.
How does compounding frequency affect my earnings?
Higher compounding frequency (daily vs annual) results in higher returns because interest is reinvested more frequently. For example, monthly compounding will generate slightly more than annual compounding with the same interest rate, as interest begins earning its own interest faster.
What happens if I make additional periodic contributions?
Periodic contributions dramatically accelerate the growth of your investment. Each new contribution adds to the capital that generates interest, creating a multiplier effect. Even small consistent monthly contributions can result in enormous differences in the long term thanks to compound interest.