Use my free compound interest calculator to see how much the future value of your initial investment can grow over time!
Albert Einstein is credited with stating, “Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t – pays it.“
While compound interest may sound intimidating, the overall concept you need to understand is simple. By using compound interest to your advantage, you can have your money work for you – to make even more money.
How To Use This Compound Interest Calculator [and what you will learn]
- The compound interest formula is described at the bottom of this page
- Enter your current principal amount (how much you have or are going to invest)
- Estimate the annual addition you will make to this investment
- Enter how long you will let this investment grow without withdrawing money from it
- Input your expected yearly investment returns (annual interest rate)
- Calculate compound interest to see how close you are to your savings goal
This calculator’s compounding frequency is based on a yearly compounding schedule
What Is A "Normal" Compound Interest Rate
Rates vary depending on the investment vehicle you choose. For instance, savings account rates are much lower than the rates you would make by investing in a mutual fund or index fund in the stock market.
Current average interest rates by vehicle:
- Money Market – 0.08% – 0.11% (Annual Percentage Yield)
- Stock Market – Historical annual return of 7.9%
- Savings Account – 0.09% (Annual Rate Percentage)
- Certificate Of Deposit
- 6-Month CD – 0.65%
- 5-Year CD – 3.10%
- Alternative Investments – Vary by investment type
How To Use Compounding Interest To Your Advantage
To make the most of a compounding investment, you need to focus on consistent investing as well as a long term view of the future. Making the most from your money is directly tied to the continuous compounding by reinvesting dividends and leaving your money alone.
In layman’s terms, if you start with $1,000 and it makes $100 in a year, the next year you will have $1,100 that will continue to grow. Compounding involves money making money and continuing to snowball into more substantial amounts.
How Compound Interest Is Calculated (for math nerds)
If you would like to see how compound interest works, here is the formula.
P = starting principal
Y = number of years invested
FV = future value
r = annual interest rate
n = how many times compounded (yearly)
Wrapping It Up
Using a compound interest calculator can give you a unique insight into how a future balance can grow exponentially if you allow for a lengthy compounding period. Accumulated interest grows at an increasing rate; the more time and money you invest, the bigger your returns.
It’s time to start letting your money work for you rather than you working for your money!