Compound Interest Calculator

Compound interest is calculated on both the initial principal and all previously accumulated interest. Simple interest is only calculated on the original principal. For example, $10,000 at 5% for 10 years earns $5,000 with simple interest but approximately $6,289 with annual compounding. The difference grows dramatically over longer time periods.

More frequent compounding produces slightly higher returns, but the difference is modest. $10,000 at 5% for 10 years yields $16,289 with annual compounding, $16,470 with monthly compounding, and $16,487 with daily compounding. The jump from annual to monthly matters more than monthly to daily. Most savings accounts compound daily.

The quote "Compound interest is the eighth wonder of the world" is often attributed to Einstein, though there is no verified source. Regardless of its origin, the principle is powerful. Starting early is the key advantage since someone who invests $200 per month from age 25 to 65 at 7% will have over $525,000, while starting at 35 yields only about $244,000.

Start investing as early as possible to give compounding the most time to work. Make regular contributions, even small ones. Choose accounts with higher interest rates such as high-yield savings accounts or CDs. Reinvest all earnings rather than withdrawing them. Minimize fees that erode your returns over time.