Compound Interest
Calculate future value with compound interest
Future Value
$54,714
Total Contributed
$34,000
Interest Earned
$20,714
Quick Facts
- •Rule of 72: divide 72 by interest rate = years to double
- •At 7%, money doubles every ~10.3 years
- •Starting 10 years earlier can double your final balance
The Power of Compound Interest
Albert Einstein reportedly called compound interest the 'eighth wonder of the world.' The key insight: your interest earns interest. $10,000 invested at 7% for 30 years becomes ~$76,000 without additional contributions. With $200/month added, it grows to ~$300,000.
Understanding the compound interest
Compound interest means each period's growth is calculated on the previous balance, including earlier growth. The effect is small at first and dominant later, which is why time in the market usually beats the size of the initial deposit.
Worked examples
10,000 at 7 percent for 20 years, compounded annually
- 1Future value = P × (1 + r)^n.
- 2(1.07)^20 = 3.8697.
- 310,000 × 3.8697 = 38,697.
38,697, of which 28,697 is growth.
Adding 300 a month to the same account
- 1Monthly rate = 0.07 ÷ 12 = 0.0058333, over 240 months.
- 2The lump sum grows to about 40,387 with monthly compounding.
- 3The contributions grow to 300 × [((1 + r)^n - 1) ÷ r] = about 156,300.
- 4Total = roughly 196,700 from 82,000 of your own money.
About 196,700 after 20 years, with 114,700 of it from compounding.
Growth of 10,000 at different rates
| Years | 3% | 5% | 7% | 10% |
|---|---|---|---|---|
| 5 | 11,593 | 12,763 | 14,026 | 16,105 |
| 10 | 13,439 | 16,289 | 19,672 | 25,937 |
| 15 | 15,580 | 20,789 | 27,590 | 41,772 |
| 20 | 18,061 | 26,533 | 38,697 | 67,275 |
| 30 | 24,273 | 43,219 | 76,123 | 174,494 |
| 40 | 32,620 | 70,400 | 149,745 | 452,593 |
How compounding frequency changes the effective rate
Nominal rate of 6 percent per year.
| Frequency | Effective annual rate | Value of 10,000 after 1 year |
|---|---|---|
| Annually | 6.000% | 10,600.00 |
| Semi-annually | 6.090% | 10,609.00 |
| Quarterly | 6.136% | 10,613.64 |
| Monthly | 6.168% | 10,616.78 |
| Daily | 6.183% | 10,618.31 |
| Continuous | 6.184% | 10,618.37 |
Frequently asked questions
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This calculator is for educational and reference purposes only. Always verify critical calculations independently.