Compound Interest Calculator - Investment Growth | Financial Calculator

Free compound interest calculator to compare compound vs simple interest growth. Choose compounding frequency and see your investment grow over time.

Compound versus simple interest

Simple interest grows in a straight line: the principal earns the same amount every year. Compound interest grows exponentially because each period's interest joins the principal and earns interest itself. With $10,000 at a hypothetical 6% over 10 years, monthly compounding reaches $18,193.97 while simple interest reaches only $16,000.00 — a $2,193.97 difference produced entirely by interest earning interest.

The Rule of 72 as a sanity check

Dividing 72 by the annual rate approximates the years needed to double your money: at 6%, roughly 72 ÷ 6 = 12 years. The calculator's exact formula confirms the approximation is close — with monthly compounding the balance doubles slightly sooner. Use the rule for quick mental checks and the calculator for precise figures; both are informational tools, not predictions of market returns.

How to Use

  1. Initial Investment — Enter the lump sum you plan to invest, for example $10,000
  2. Annual Interest Rate — Enter the expected average annual return (%) — a deliberately hypothetical figure you control
  3. Investment Period — Enter the horizon in years or months; compounding differences grow dramatically with time
  4. Compounding Frequency — Choose annual (1), semi-annual (2), quarterly (4), or monthly (12) compounding periods per year
  5. Calculate — Click Calculate to see the compound result next to a simple-interest comparison and the gap between them
  6. Stretch the Horizon — Re-run with 10, 20, and 30 years to watch the exponential curve pull away from the straight line

FAQ

Why does compound interest matter more than simple interest?

Compound interest earns returns on previously earned interest, creating exponential growth. The longer the investment period, the more dramatically it outpaces simple interest.

Does more frequent compounding give better results?

Yes — monthly compounding outperforms quarterly, which outperforms annual. More frequent compounding means interest is reinvested sooner, leading to higher final returns.

What is the Rule of 72?

Divide 72 by the annual interest rate to estimate years to double your money. Example: at 6% annual return, 72÷6 = 12 years to double. A handy rule for long-term planning.

What formula does the calculator use?

A = P(1 + r/n)^(nt), where P is the initial amount, r the annual rate as a decimal, n the compounding periods per year (1, 2, 4, or 12), and t the years. The simple-interest comparison uses A = P(1 + r × t) with no reinvestment.

How big is the gap between monthly and annual compounding?

$10,000 at a hypothetical 6% for 10 years grows to $18,193.97 with monthly compounding versus $17,908.48 with annual — about $285 more, because interest is credited and reinvested twelve times a year instead of once.

Does the calculator include contributions, fees, or taxes?

No — it models a single lump sum with no monthly additions, fees, or taxes, isolating the pure effect of compounding. To model recurring monthly investments, the ETF DCA simulator on this site covers that pattern.