Calculate the future value of your investments with compound interest. Include regular contributions to see how your savings grow over time.
| Future Value | $31,998.32 |
|---|---|
| Total Contributions | $12,000.00 |
| Total Interest Earned | $9,998.32 |
| Year | Balance | Contributions | Interest |
|---|
Compound interest is the process of earning interest on both the initial principal and the interest accumulated over time. Unlike simple interest, which is calculated only on the principal, compound interest leads to exponential growth, making it a powerful tool for building wealth. It’s often referred to as “interest on interest” and is common in savings accounts, investments, and loans.
Compound interest is calculated using the formula:
A = P (1 + r/n)^(nt)
Where:
For regular contributions, the future value of an annuity is added:
FV = C * [((1 + r/n)^(nt) - 1) / (r/n)]
Where C is the contribution per period. If contributions are made at the start of each period, multiply by (1 + r/n). For example, a $10,000 investment at 5% annual interest, compounded monthly for 10 years with $100 monthly contributions (end of period), yields approximately $17,918.55, with $12,000 in contributions and $5,918.55 in interest.
Compound interest is crucial for long-term wealth building. The exponential growth it provides means that even small investments can grow significantly over time. Starting early maximizes the benefits, as interest accumulates over more compounding periods. It’s a key principle behind retirement accounts, mutual funds, and other investment vehicles. Understanding compound interest helps you make informed decisions about saving and investing.
Several factors influence the growth of compound interest:
Explore related tools like our Investment Calculator to analyze other investment scenarios.
To make the most of compound interest: