Explanation

What Is Compound Interest?

Compound interest is the process of earning interest on both your original money and the interest that has already accumulated. Instead of your growth being calculated only on the amount you initially invested, your accumulated earnings can also begin generating additional earnings.

This creates a compounding effect that can become increasingly powerful as time passes. The longer money remains invested and continues to compound, the more opportunity there is for previous growth to contribute to future growth.

A compound interest calculation generally depends on several factors: the initial amount invested, the interest or expected rate of return, the frequency of compounding, the length of time the money is invested, and any additional contributions made along the way.

For example, investing $5,000 at an annual return of 8% would not simply mean earning $400 every year. As the account grows, future returns are calculated on the larger balance. If additional money is contributed regularly, those contributions can also participate in future growth.

Compound interest is particularly important when thinking about long-term saving and investing because time can have a major effect on the final result. Even relatively small, consistent contributions can potentially grow substantially when given many years to compound.

Our Compound Interest Calculator allows you to experiment with different starting amounts, contributions, rates, time periods, and compounding frequencies so you can see how these factors can affect potential growth.

Note: Investment returns are not guaranteed. This calculator provides mathematical estimates based on the assumptions you enter and does not predict actual investment performance.