This compound calculator from Calculator Bank helps you determine your compound interest earnings by calculating interest on both the principal and accumulated interest over time.
Final Balance
Total Contributions
Total Interest Earned
Effective Annual Rate
What Is Compound Interest?
Compound interest is the financial phenomenon where you earn returns not just on your original investment but also on the accumulated interest over time. Unlike simple interest, which calculates growth based solely on the principal amount, compound interest creates a snowball effect where your money grows at an increasingly faster rate. This accelerated growth occurs because each interest payment gets added to your principal, forming a new, larger base on which future interest calculations occur.
Understanding the Compound Interest Calculator
Initial Investment
The initial investment represents the lump sum you start with in your investment account. This is the foundation of your investment starting point—the principal amount that begins working for you from day one.
Whether you’re starting with $100 or $100,000, this value acts as the baseline from which your wealth can grow. The power of compound interest means even modest starting amounts can grow significantly over time when given enough years to compound.
Monthly Contribution
A monthly contribution refers to the additional money you plan to invest regularly each month. Think of this as feeding your investment consistently over time, allowing you to build wealth through the discipline of regular saving.
These contributions not only add to your principal but also begin earning their own compound returns. For many investors, the steady habit of monthly contributions ultimately contributes more to final wealth than the initial investment, especially over a longer time frame.
Annual Interest Rate
The annual interest rate is the percentage your investment is expected to grow annually. For stocks, this might be the anticipated market return; for bonds or savings accounts, it’s the stated interest rate. This figure fundamentally drives your investment’s growth potential. Historical stock market returns have averaged around 7-10% annually over long periods, while savings accounts might offer 1-2% in normal economic conditions.
Time Period
The time period, measured in years, is the most powerful variable in the compound interest calculations. Time allows the miracle of compounding to work its wonder, with earlier years laying the groundwork for exponential growth in later years. Einstein allegedly called compound interest the eighth wonder of the world for good reason—the difference between investing for 10 years versus 30 years isn’t merely three times greater; it can be many multiples more due to the snowball effect of returns generating their own returns.
Compound Frequency
Compound frequency determines how often the interest is calculated and added to your principal within a year. Daily compounding calculates interest every day, while annual compounding does so just once yearly.
The higher the compounding frequency, the more opportunities your money has to grow upon itself. While the difference between monthly and daily compounding might seem minor in short timeframes, over decades, these small advantages accumulate into noticeable differences in your final balance.
Final Balance
The final balance shows the total projected value of your investment at the end of your specified time period. This number includes your initial investment, all subsequent contributions, and the compound interest earned. This figure represents the culmination of your investment strategy—the potential future value of your disciplined saving and investment approach. For many investors to see this projected final balance, it motivates them to start earlier and contribute more consistently.
Total Contributions
Total contributions tallies all the money you’ve personally put into the investment—your initial investment plus all monthly contributions over time. This figure helps you understand exactly how much of your final balance came from your pocket rather than from investment returns.
Comparing this number with your final balance reveals the true power of compound growth—often showing that a significant portion of your ending wealth came not from your direct contributions but from the returns your money generated.
Total Interest Earned
Total interest earned represents the difference between your final balance and your total contributions—essentially, the “free money” generated by your investment over time. This is the tangible benefit of putting your money to work through investing rather than keeping it in cash.
For long-term investments, this figure often exceeds the total contributions, meaning you earned more from interest than you actually deposited—a powerful demonstration of why investing early and consistently is so important.
Effective Annual Rate
The effective annual rate shows you the true annual return when accounting for the compounding frequency. When interest compounds more frequently than once per year, the effective rate will be higher than the stated annual rate. This figure gives a standardized way to compare different investment options that might compound at different intervals. For instance, an 8% interest rate compounded monthly yields an effective annual rate of about 8.3%, showing the real growth potential of your investment.