Compound interest is the most powerful tool in finance. Instead of just earning interest on your initial investment, you earn interest on the entire accumulated amount. This is called "interest on interest" and it's how most investments and bank deposits work.
Why compound interest matters
- Bank deposits- your deposit grows faster each year
- Investments- the stock market works on compound interest principles
- Loans- the same mechanism works against you, increasing debt
- Retirement savings- the earlier you start, the bigger the result
Compound interest formula
Final amount = Principal × (1 + rate/100)^period
For example: $100,000 at 12% per year after 5 years = $100,000 × (1.12)^5 = $176,234
But calculating manually is inconvenient. Our calculator does it for you.
How to use the calculator
- Enter the initial deposit amount
- Specify the annual interest rate (as percentage)
- Choose the deposit term (months or years)
- Select the interest compounding frequency
- Get results with a growth chart
What the calculator shows
| Final amount | How much money will be in the account |
|---|---|
| Earnings | Profit beyond the initial deposit |
| Effective rate | Real annual return |
| Growth chart | Visualization of savings over time |
Calculation examples
Deposit $500,000 for 3 years at 15%:
- Final amount: $760,045
- Earnings: $260,045
- Effective rate: 15% per year
Investment $1,000,000 for 10 years at 10%:
- Final amount: $2,593,742
- Earnings: $1,593,742
- 2.6 times the initial investment
Why it works
- Reinvestment- interest is added to the sum and also works
- Time- the longer the term, the stronger the effect
- Rate- even a small increase gives a big result over long terms
FAQ
How do compound interest and simple interest differ?
Simple interest is calculated only on the initial amount. Compound interest is calculated on the entire accumulated amount, including previous interest.
How often does compounding occur?
Depends on deposit terms: monthly, quarterly, annually. More frequent = higher final amount.
Can I use it for loan calculations?
Yes, the calculator will show how debt grows with compound accrual (like in real loans).
Does inflation affect the calculation?
The calculator shows nominal returns. Real returns (minus inflation) need to be calculated separately.