Compound Interest Calculator

Compound interest is interest earned on both your initial principal and all previously accumulated interest. Unlike simple interest, it grows exponentially over time, making it one of the most powerful forces in personal finance and investing.

More frequent compounding means interest is calculated and added to your balance more often, so you earn interest on interest sooner. Daily compounding produces slightly more than monthly, which produces more than annual compounding, for the same nominal rate.

The EAR converts any nominal rate compounded at a given frequency into an equivalent annual rate. It lets you fairly compare investment products with different compounding frequencies. Formula: EAR = (1 + r/n)^n - 1.

Savings accounts typically yield 0.5-5%. Government bonds yield 2-6%. Historically, broad stock market indices have averaged 7-10% annually over long periods, before inflation adjustment. Real (inflation-adjusted) equity returns are often 5-7%.

Inflation erodes the real purchasing power of your returns. If your investment earns 8% but inflation is 3%, your real return is approximately 5%. This calculator lets you enter an inflation rate to see the inflation-adjusted final value.

The Rule of 72 is a quick mental math shortcut: divide 72 by the annual interest rate to estimate years needed to double an investment. At 8%, money roughly doubles in 9 years. It is accurate for rates between 6-10%.

Yes. Enter the loan amount as principal, the loan interest rate, and the loan term. The result shows the total amount owed if no payments are made. For amortised loan repayment schedules, a dedicated loan calculator is more appropriate.

Continuous compounding is the theoretical limit where compounding occurs infinitely frequently. The formula is A = Pe^(rt). In practice, no product truly offers continuous compounding, but it serves as a theoretical maximum and is used in options pricing models.

Regular contributions dramatically accelerate wealth accumulation. The effect is most powerful when contributions are made early in the investment period because they benefit from the longest compounding period. This is the basis of dollar-cost averaging.

Yes. Returns may be subject to capital gains tax, income tax, or dividend tax depending on your jurisdiction and account type. Tax-advantaged accounts (ISA, 401k, pension) shelter returns from tax, allowing full compounding. This calculator shows pre-tax figures.

The nominal rate is the stated annual rate without accounting for compounding within the year. The effective rate (EAR) accounts for intra-year compounding and represents the true annual return. For example, 12% nominal compounded monthly gives an EAR of 12.68%.

Time has an exponential effect. Doubling the time more than doubles the final amount at any rate above zero. Starting to invest earlier is more valuable than investing a larger sum later, which is why financial advisors emphasise starting young.

Yes, with debt. Credit card interest, payday loans, and some mortgages compound against you. High-interest debt compounds rapidly, making it essential to pay off high-rate debt before investing in lower-return instruments.

APR (Annual Percentage Rate) is the nominal rate, often used for loans. APY (Annual Percentage Yield) includes compounding effects and represents the effective annual rate, commonly used for savings accounts. APY is always equal to or higher than APR for the same nominal rate.

Compound interest calculations are mathematically exact for a fixed rate, but real-world returns fluctuate. Long-term projections are useful for planning but assume a constant rate, which rarely holds in practice. Treat them as illustrative estimates.

Dollar-cost averaging means investing a fixed amount at regular intervals regardless of market price. It reduces the risk of investing a large lump sum at a market peak and is mathematically similar to the regular contributions feature in this calculator.