Compound Interest Calculator
Discover the power of compound interest and watch your money grow exponentially over time.
Understanding Compound Interest
What is Compound Interest?
Simple Definition: Earning interest on your interest. Your money grows exponentially, not linearly.
The Magic: A $10,000 investment at 7% for 30 years becomes $76,123 without adding another penny.
Einstein called it: "The eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."
Key Variables Explained
Principal (Starting Amount)
Your initial investment. Even $1,000 can grow to significant wealth with time.
Interest Rate (Annual Return)
Historical stock market average: 10%. Conservative estimate: 7%. Savings accounts: 0.5-5%.
Time (Years)
The most powerful variable. Starting 10 years earlier can double your final amount.
Compounding Frequency
How often interest is calculated. Daily → Monthly → Quarterly → Annually.
Regular Contributions
Adding money regularly supercharges growth. $200/month can become $500,000+ over 30 years.
Smart Investment Strategies
Tax-Advantaged Accounts First
- 401(k): Employer match = free money (100% instant return!)
- Roth IRA: Tax-free growth forever
- HSA: Triple tax advantage for health expenses
Investment Options by Risk/Return
- High-yield savings: 4-5% (safe, liquid)
- Bonds: 3-6% (relatively safe)
- Index funds: 7-10% (moderate risk, recommended)
- Individual stocks: Variable (higher risk)
Avoid These Costly Mistakes
❌ Waiting to start: Every year of delay costs you thousands in final value
❌ Timing the market: Time IN the market beats TIMING the market
❌ High fees: A 2% fee can eat 50% of your returns over 30 years
❌ Not increasing contributions: Raise them with every pay increase
❌ Withdrawing early: Breaks the compound effect and triggers penalties
Your Action Plan
- Use the calculator to see your potential future wealth
- Start with ANY amount - even $50/month matters
- Automate investments so you never miss a month
- Increase contributions by 1% every year
- Stay invested through market ups and downs
- Review and rebalance annually, but don't overtrade