Compound Interest Calculator

Compound interest is the process of earning returns not just on your initial investment, but also on the returns that investment has already generated. In other words, your money earns interest, and then that interest earns interest too.

For example, if you invest $1,000 at a 10% annual return, you'll have $1,100 after one year. In year two, you earn 10% on the full $1,100—not just the original $1,000—giving you $1,210. Over time, this snowball effect can dramatically increase your wealth.

This differs from simple interest, where you only earn returns on your original principal. With simple interest, that same $1,000 would earn $100 every year, regardless of how much the account has grown. Compound interest accelerates growth because your earnings keep working for you.

The most powerful factors in compound interest are time and consistency. Starting early gives your investments more time to compound, and even small regular contributions can lead to significant growth over decades.

Staying invested through market cycles is equally important. Pulling money out or stopping contributions during downturns interrupts the compounding process and can drastically reduce long-term returns.

The calculator above lets you model different scenarios. Try adjusting the time horizon and contribution amounts to see how small changes in behaviour—like starting five years earlier or adding an extra $100 per month—can transform your outcomes.

Compound interest rewards patience and discipline more than speculation or market timing. The key is to invest regularly, maintain a reasonable allocation, and let time do the heavy lifting.

Compound interest works across a range of investment vehicles. High-yield savings accounts and certificates of deposit offer modest but predictable returns with minimal risk, making them suitable for shorter time horizons or emergency funds.

For longer-term goals like retirement, low-cost index funds and exchange-traded funds (ETFs) provide exposure to stocks and bonds with historically higher average returns. These investments carry more volatility, but over decades, compounding can smooth out short-term fluctuations.

Retirement accounts like 401(k)s and IRAs also benefit from compound growth, often with tax advantages that enhance returns. Employer matching in a 401(k) acts as an immediate boost to your compounding base.

This is not personalised financial advice. Your investment choices should reflect your time horizon, risk tolerance, and financial goals. The point is that compound interest applies broadly—the sooner you put money to work in appropriate vehicles, the more time it has to grow.

Compound interest depends on four core variables: the principal (your starting amount), the interest rate or rate of return, the length of time you stay invested, and how frequently interest is compounded.

The principal is what you start with. The rate determines how much your investment grows each period. Time allows compounding to work its magic—the longer you invest, the more dramatic the effect. Compounding frequency refers to how often earned interest is added back to your principal. The more frequent the compounding, the faster your balance grows.

Using the calculator above, you can see how changing any of these variables—especially time and rate—affects your final balance. Even a 1% difference in annual return, compounded over 30 years, can mean tens of thousands of dollars in additional wealth.

You don't need to memorise formulas to understand compound interest. The intuition is simple: your money grows, and then the growth itself grows. That feedback loop is what makes long-term investing so powerful.

Let's assume you invest $10,000 today with no additional contributions, earning an average annual return of 7%, compounded annually. In 20 years, that initial investment would grow to approximately $38,700.

If you account for 2.5% average annual inflation, the real purchasing power of that balance would be closer to $23,700 in today's dollars. This illustrates why it's important to think about real returns, not just nominal growth.

Of course, actual results depend on the rate of return you achieve, market conditions, taxes, fees, and inflation. The calculator above allows you to model different scenarios and see how outcomes shift with different assumptions.

The takeaway is clear: even a modest lump sum, left untouched and invested wisely, can grow substantially over time thanks to compounding.

Regular contributions amplify the power of compound interest. When you add money consistently—whether monthly or annually—you're not just increasing your balance. You're also creating new opportunities for that money to compound over time.

For example, investing $200 per month at a 7% annual return over 30 years results in a balance of over $240,000, even though you only contributed $72,000. The rest comes from compound growth.

Consistency often matters more than perfect timing. Trying to time the market or waiting for the "right moment" typically costs more in missed compounding than it saves. Dollar-cost averaging—investing a fixed amount regularly—removes emotion from the process and ensures you benefit from compounding throughout your investment horizon.

Use the calculator to see how adjusting your contribution amount or frequency changes your projected balance. You may be surprised by how achievable long-term wealth becomes with steady, disciplined saving.