Invesight

Compound Interest Calculator

Simulate compound returns and savings growth

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What is Compound Interest?

Compound interest is interest accumulated from a principal sum and previously accumulated interest. It is the result of reinvesting interest that would otherwise be paid out. Unlike simple interest, which is calculated only on the principal, compound interest grows exponentially over time. (Source: Wikipedia, Compound interest)

The compound interest formula is: A=P(1+rn)ntA = P\left(1 + \frac{r}{n}\right)^{nt} where A is the final amount, P is the principal, r is the annual interest rate, n is the number of compounding periods per year, and t is the time in years. With regular contributions, each deposit also earns compound interest for its remaining investment period.

The Rule of 72 provides a quick way to estimate how long it takes for an investment to double: t≈72rt \approx \frac{72}{r} At 8% per year, your money doubles in approximately 72 ÷ 8 = 9 years. This approximation works well for rates between 6% and 10%.

The power of compounding is significant over long periods. Investing $1,000 per month at 10% annual return for 30 years turns $360,000 in contributions into approximately $2.2 million — the majority of the final amount comes from compound growth, not the original contributions.

FAQ

What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus all previously accumulated interest. For example, $10,000 at 10% for 3 years yields $13,000 with simple interest but $13,310 with compound interest.
What is the Rule of 72?
A quick estimation method to determine how long an investment takes to double. Divide 72 by the annual rate of return: at 6%, money doubles in about 12 years; at 12%, in about 6 years. It's an approximation, not exact, but useful for quick mental math.
How can I maximize compound interest?
Three key factors: (1) Start early — compounding accelerates over time. (2) Reinvest earnings — don't withdraw dividends or interest. (3) Contribute regularly — monthly investments significantly boost the compounding effect.
What is the compound interest formula?
A=P(1+rn)ntA = P\left(1 + \frac{r}{n}\right)^{nt} A = final amount, P = principal, r = annual rate (decimal), n = compounding frequency (12 for monthly), t = time in years. For regular contributions, add: PMT×(1+r/n)nt−1r/nPMT \times \frac{(1+r/n)^{nt} - 1}{r/n}