Compound Interest Calculator
A compound interest calculator helps you estimate how an amount grows over time when interest is added back to the principal at regular intervals. Unlike simple interest, the interest earned in each period becomes part of the base for future interest calculations.
The tool shows the final value of the investment or loan, along with the total interest earned over the selected duration. By separating interest from the original amount, it becomes easier to see the real impact of compounding over time.
How the Calculation Works
Compound interest works by repeatedly applying interest not only to the original amount, but also to interest accumulated so far. Each compounding period increases the base on which the next period’s interest is calculated.
The calculator applies the annual interest rate over the chosen time period and adjusts it based on the selected compounding frequency. More frequent compounding results in slightly higher final values, even when the annual rate and duration remain the same.
- Interest is reinvested at each compounding interval
- The annual rate is assumed to remain constant
- No intermediate deposits or withdrawals are included
- Taxes, fees, and penalties are excluded
Inputs and Options Explained
The calculator allows you to control the key variables that influence compound growth. Each input affects the final outcome in a different way.
- Initial Value — The principal amount on which interest is calculated at the start.
- Annual Interest Rate (%) — The yearly rate used to compute interest before adjusting for compounding frequency.
- Time Period — The total duration for which the amount is allowed to grow. You can enter this in years or months.
- Compounding Frequency — How often interest is added back to the principal, such as yearly, quarterly, or monthly.
Examples and Edge Cases
Over short durations, the difference between simple and compound interest may appear small. However, as the time period increases, compounding begins to dominate the outcome, leading to significantly higher growth.
Increasing the compounding frequency also increases the final value, though the effect is gradual. The difference between yearly and monthly compounding is usually much smaller than the impact of extending the investment duration.
Who Should Use This Tool
This calculator is suitable for scenarios where interest is compounded and reinvested over time, which is common in most real-world financial products.
- Investors estimating long-term growth
- Borrowers reviewing compound-interest loans
- Anyone comparing compounding outcomes at different frequencies
Related Concepts
Compound interest is closely related to other commonly used financial concepts that describe growth and returns.
- Simple Interest — Interest calculated only on the original amount, without reinvestment.
- Compounding Frequency — How often interest is added back to the principal.
- Maturity Value — The final amount after all interest has been applied.
If interest is not reinvested in your case, a Simple Interest Calculator may be more appropriate. For one-time investment projections, a Lumpsum Calculator can also be useful.