Calculate the power of compound interest on your investments and savings. See how your money can grow over time with different interest rates and compounding frequencies.
Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. Often called "the eighth wonder of the world," compound interest is the key to building long-term wealth through investing and saving.
The power of compounding comes from earning returns not just on your original investment, but also on all the returns your investment has generated over time. The longer your money stays invested, the more dramatic the compounding effect becomes.
A = Final amount, P = Principal, r = Annual rate, n = Compounding frequency, t = Time in years
PMT = Regular payment amount
Quick way to estimate how long it takes to double your money
| Frequency | Times per Year | $10,000 at 6% for 10 Years | Difference from Annual |
|---|---|---|---|
| Annually | 1 | $17,908 | Base |
| Semi-annually | 2 | $18,061 | +$153 |
| Quarterly | 4 | $18,140 | +$232 |
| Monthly | 12 | $18,194 | +$286 |
| Daily | 365 | $18,220 | +$312 |
| Initial Investment | Annual Return | 10 Years | 20 Years | 30 Years |
|---|---|---|---|---|
| $10,000 | 5% | $16,289 | $26,533 | $43,219 |
| $10,000 | 7% | $19,672 | $38,697 | $76,123 |
| $10,000 | 9% | $23,674 | $56,044 | $132,677 |
| $10,000 | 11% | $28,394 | $80,623 | $228,923 |
| Investment Type | Historical Average | Risk Level | Typical Use |
|---|---|---|---|
| High-yield Savings | 1-5% | Very Low | Emergency fund, short-term |
| CDs | 2-6% | Very Low | Guaranteed returns |
| Government Bonds | 3-7% | Low | Conservative portfolio |
| Corporate Bonds | 4-8% | Low-Medium | Income generation |
| S&P 500 Index | 10% | Medium-High | Long-term growth |
| Small Cap Stocks | 12% | High | Growth potential |
Even small amounts grow significantly over long periods
Dollar-cost averaging reduces risk and builds wealth
Don't spend the interest - let it grow your principal
| Age Range | Stock Allocation | Bond Allocation | Focus |
|---|---|---|---|
| 20s-30s | 80-90% | 10-20% | Maximum growth |
| 40s | 70-80% | 20-30% | Balanced growth |
| 50s | 60-70% | 30-40% | Pre-retirement |
| 60s+ | 40-60% | 40-60% | Capital preservation |
Nominal Return: The actual percentage your investment earns.
Real Return: Your return after adjusting for inflation.
Example: 7% investment return with 3% inflation = 4% real return.
Historical Inflation: U.S. average inflation rate is approximately 3% per year over the long term.
Starting Too Late: Every year of delay significantly reduces final wealth.
Not Reinvesting: Spending dividends and interest instead of reinvesting.
Stopping Contributions: Interrupting regular investments hurts long-term growth.
Chasing Performance: Frequent trading reduces the power of compounding.
Ignoring Fees: High fees can dramatically reduce compound growth over time.
The $10,000 Example: $10,000 invested at 7% annual return becomes $76,123 in 30 years without any additional contributions.
The Coffee Example: $5 daily coffee costs ($1,825/year) invested at 7% becomes $183,020 over 30 years.
The Early Bird Advantage: Starting at 25 vs. 35 with $200/month at 7% results in $100,000+ more at retirement.