Quick answer: Compound interest grows money on both the principal and previously earned interest: final amount equals principal times one plus the periodic rate, raised to the number of periods. More frequent compounding earns slightly more. The Rule of 72 gives a quick estimate: divide 72 by the annual rate to get years to double.
Last reviewed: September 2026
Key facts
- A = P(1 + r/n)nt — interest earns its own interest, so growth accelerates.
- More frequent compounding grows money slightly faster: daily beats monthly beats yearly.
- Time matters more than rate: starting early beats investing more later.
- $10,000 at 7% compounded monthly for 10 years → about $20,097.
Compound interest is interest earning interest — the engine behind long-term wealth. This free compound interest calculator projects the future value of your savings from the starting amount, annual rate, number of years and compounding frequency.
Enter your principal, rate, years and how often interest compounds. The future value and the interest earned appear instantly — try monthly vs yearly compounding to see what frequency is worth.
How to use
- Enter your initial investment and the annual interest rate.
- Choose how many years the money grows and the compounding frequency.
- The future value and interest earned appear instantly.
- Compare monthly vs yearly compounding to see the difference frequency makes.
Compound interest formula
| Term | Meaning |
|---|---|
| A | Future value — what you end up with. |
| P | Principal — the starting amount. |
| r | Annual interest rate as a decimal. |
| n | Compounds per year (12 = monthly, 4 = quarterly, 1 = yearly). |
| t | Number of years. |
Each compounding period adds interest to the balance, and the next period pays interest on that larger balance — the snowball effect.
Worked examples
Ten years of growth
$10,000 at 7% compounded monthly for 10 years:
A = 10000 × (1 + 0.07/12)120 ≈ $20,096.61 — of which $10,096.61 is pure interest. The money roughly doubles.
Frequency comparison
$5,000 at 6% for 5 years, compounded quarterly:
A = 5000 × (1 + 0.06/4)20 ≈ $6,734.28 (interest $1,734.28).
Compounded yearly instead it would be $6,691.13 — quarterly compounding earns about $43 extra for free.
What compounding frequency is worth
| Frequency | n | $5,000 at 6%, 5 yrs |
|---|---|---|
| Yearly | 1 | $6,691.13 |
| Half-yearly | 2 | $6,719.58 |
| Quarterly | 4 | $6,734.28 |
| Monthly | 12 | $6,744.25 |
| Daily | 365 | $6,749.07 |
More frequent compounding always wins, but the gaps shrink: daily beats yearly by only about $58 here. Rate and time dominate.
Frequently asked questions
What is compounding frequency?
How often interest is added to the balance — yearly, quarterly, monthly or daily. More frequent compounding earns slightly more.
Why does compound interest matter for investing?
Because growth accelerates: each year’s gains earn their own gains. Starting early beats investing more later — the classic argument for starting retirement saving young.
Simple vs compound interest?
Simple interest pays only on the original principal. Compound interest pays on principal plus past interest, so it grows faster — compare with the Simple Interest Calculator.
What is the Rule of 72?
A shortcut: years to double ≈ 72 ÷ rate%. At 7%, money doubles in about 10.3 years.
Does inflation reduce the real return?
Yes. Subtract expected inflation from the nominal rate for the “real” growth in purchasing power.
Sources
- NerdWallet — Compound interest explained with examples
- Federal Reserve — U.S. central bank; interest-rate background
Key takeaways
- A = P(1 + r/n)nt — interest on interest is what makes savings snowball.
- Time beats rate: an early start matters more than a slightly higher return.
- Use the Rule of 72 (72 ÷ rate% ≈ years to double) for quick estimates.
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