Compound Interest Calculator
Discover the immense power of compounding! Calculate the future value of your savings or investment, including the effect of regular deposits.
Investment Parameters
Growth Projection Summary
Enter all your investment details on the left to instantly see your projected future wealth.
How to Use the Compound Interest Calculator
- Set the Currency: Select your local currency (e.g., USD, EUR, INR) for correctly formatted results.
- Input Starting Principal: Enter the amount you are beginning with. If you are starting from zero, enter '0'.
- Provide the Annual Rate: Input the expected average annual rate of return as a percentage (e.g., 7.5 for 7.5%).
- Define the Term and Frequency: Set the number of years for the investment and select how often the interest is added to the principal (the compounding frequency). The more frequent, the faster the growth!
- Add Contributions (Optional): Enter any amount you plan to save monthly. This dramatically increases the future value. If none, leave it at '0'.
- Analyze the Results: The "Future Value" is the total amount you will have. The breakdown shows how much of that total came from your contributions versus the interest earned.
Why is Compound Interest Called "The Eighth Wonder of the World"?
Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods. In simple terms, you earn interest on your interest. This calculator allows you to visualize this exponential growth. The earlier you start and the longer your investment horizon, the greater the impact of compounding. The graph of compound interest growth is not a straight line; it's a curve that becomes steeper over time, demonstrating how a small investment can balloon into a significant sum.
[Image of Compound Interest Growth Curve comparing simple vs compound interest]Important Information: Understanding the Calculation
This tool uses the following two financial formulas to provide a comprehensive result:
- **Future Value of Principal:** $$ FV_{P} = P(1 + r/n)^{nt} $$
- **Future Value of a Series of Payments (Contributions):** $$ FV_{PMT} = PMT \times \frac{(1 + r/n)^{nt} - 1}{r/n} $$
The total Future Value (FV) is the sum of $FV_{P}$ and $FV_{PMT}$. Note that this calculation is a projection based on the *average* annual rate and does not account for fluctuations, inflation, taxes, or withdrawal penalties, all of which affect real-world returns. Always consider your calculations conservative and consult a financial advisor for specific planning.
Frequently Asked Questions (FAQ)
What is the difference between Annual and Monthly compounding?
Compounding frequency determines how often the earned interest is added back to the principal balance. Monthly (12 times/year) compounding will always result in a slightly higher final amount than Annual (1 time/year) compounding, because the interest starts earning interest on itself sooner. This effect is most noticeable over long time periods.
What if I enter 0 for the Starting Principal?
If you are just starting your investment journey and plan to make only regular deposits going forward, entering 0 for the Principal is correct. The calculator will then focus on the future value generated purely from your monthly contributions and the compounding growth they achieve.
Does this calculation account for inflation?
No, the result is the *nominal* future value. To find the *real* future value (adjusted for lost purchasing power), you would need to subtract the average inflation rate from your annual interest rate and run the calculation again.
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