What is Compound Interest Calculator?
Compound interest occurs when earned interest is reinvested back into the principal balance, generating additional interest on top of past interest in an exponential growth curve.
How to Use This Calculator
- Enter starting deposit amount.
- Specify ongoing monthly contributions.
- Input estimated annual rate of return and investment timeframe.
- View your final portfolio value and the exponential split between deposits and compound earnings.
The Mathematical Formula & Variables
Future Value = P*(1 + r/n)^(n*t) + PMT * [((1 + r/n)^(n*t) - 1) / (r/n)]
Variables Definition
| Symbol / Variable | Name | Description |
|---|---|---|
P |
Initial Capital | Starting balance. |
PMT |
Periodic Contribution | Monthly additions. |
n |
Frequency | Compounding cycles per year (12 for monthly). |
Step-by-Step Worked Example
Scenario: $10,000 initial balance with $500/month contributions at 8% annual return compounded monthly for 10 years.
- Total deposits = $10,000 + ($500 * 120 months) = $70,000.
- Compound interest earned = $78,260.
- Final account balance = $148,260.
Result: Total Balance = $148,260 (Interest: $78,260)
Frequently Asked Questions
What is the Rule of 72?
The Rule of 72 estimates how many years it takes for your investment to double at a fixed annual return: divide 72 by the annual return rate. At 8% annual growth, money doubles in approximately 9 years (72 / 8 = 9).