Compound Interest Calculator

How to Calculate Compound Interest

Compound interest is interest earned on both your original money and the interest it has already earned. Over time that snowball effect does most of the heavy lifting, which is why starting early matters so much. To calculate compound interest on a lump sum, use the standard formula:

The interest you earn, rather than the final balance, is simply A minus P. Every compound interest question comes back to these five variables. Here is a worked example: $10,000 invested at 6% a year, compounded monthly, for 10 years.

1. Write down the variables: P = 10,000, r = 0.06, n = 12 (monthly), t = 10.
2. Divide the rate by n: 0.06 / 12 = 0.005 per month.
3. Add 1: 1 + 0.005 = 1.005.
4. Find the exponent, n × t: 12 × 10 = 120 periods.
5. Raise and multiply: 1.005¹²⁰ = 1.8194, and 10,000 × 1.8194 = $18,194.

So $10,000 becomes about $18,194, roughly $8,194 of interest. Simple interest would have paid only $6,000 over the same ten years, so compounding added about $2,194 with no extra effort. The calculator above runs the same formula, adds your regular contributions, and simulates every month so the result stays accurate for any compounding frequency.

Compound Interest vs Simple Interest

The difference is what the interest is calculated on. Simple interest is always calculated on the original principal: $10,000 at 6% earns $600 every year, forever. Compound interest is calculated on the principal plus all the interest already earned, so each year you earn interest on a slightly bigger balance.

Over a year or two the gap is small; over decades it is enormous. After 5 years, $10,000 at 6% grows to $13,000 with simple interest and about $13,382 with annual compounding, a $382 difference. After 30 years, simple interest still gives just $28,000, while compounding gives about $57,435, more than double.

Why Compounding Frequency Matters

The more often interest compounds, the more you earn, because interest starts earning its own interest sooner. Here is the same $10,000 at 6% for 10 years at three frequencies:

The jump from annual to monthly is bigger than the jump from monthly to daily: there are diminishing returns to compounding more often. The interest rate and, above all, time matter far more than frequency.

Adding Regular Contributions

Most people do not invest once and stop; they add money every month. Each contribution starts compounding from the day it goes in. Adding $200 a month for 10 years at 6% compounded monthly grows to about $32,776: you put in $24,000 and compounding added roughly $8,776. Combine a starting balance with monthly contributions and the totals grow quickly, which is exactly what the calculator above projects year by year.

The Rule of 72: A Quick Shortcut

For a quick estimate without the formula, divide 72 by your annual interest rate to find roughly how many years it takes your money to double. At 6% that is 72 / 6 = 12 years; at 8%, about 9 years. It works in reverse too: to double your money in 8 years you need roughly a 9% return. It is an approximation (the exact answer at 6% is 11.9 years), but it is close enough for mental math.

Where You Earn Compound Interest

• High-interest savings accounts (HISA): interest is usually calculated daily and paid monthly, so it compounds while your money stays accessible.
• GICs and term deposits: a fixed rate compounds over the term, though some short GICs pay simple interest, so check the terms.
• Investments: in a diversified portfolio, compounding comes from reinvested dividends and growth rather than a fixed rate, so the return varies year to year.

If you are deciding where to keep cash, compare the options in our GIC vs HISA guide and the current savings rates.

What a realistic return rate is

The rate you choose drives everything, so it pays to be realistic. Over the long run, a broad stock-market index has historically returned roughly 7 to 10 percent per year before inflation, while safer holdings like high-interest savings or GICs return much less. A single annualized figure is the fairest way to compare options, which our guide on how to calculate ROI explains. Because markets do not move in a straight line, investing a fixed amount on a schedule, known as dollar-cost averaging, smooths out the timing. And once you are planning to live off your savings, the 4% rule helps translate a balance into sustainable income. Explore all our free financial calculators to plan the next step.

Treat any single-rate projection as a guide, not a guarantee. Real returns are not smooth and can be negative, fees quietly reduce your effective rate, and inflation erodes the buying power of the final number, which is why this calculator offers an inflation adjustment. Taxes can apply too, unless the money grows inside a registered account such as a TFSA or RRSP, or a 401(k) or IRA in the United States. For a regulator-backed explainer, see the US Securities and Exchange Commission’s compound interest page on Investor.gov.

Compound Interest and Early Retirement

Compound interest is why someone who starts investing in their twenties can end up with more than someone who starts in their thirties, even after contributing far less. Time is the most powerful variable because it sits in the exponent.

Take two savers earning 7% a year. Ava invests $5,000 a year from 25 to 35, ten years, then never adds another dollar. Ben invests the same $5,000 a year from 35 to 65, thirty years. At 65 Ava has about $526,000 from $50,000 of contributions; Ben has about $472,000 from $150,000. Ava put in a third as much and still finishes ahead, purely because her money had an extra decade to compound.

That is the idea behind Coast FIRE: invest enough early, let compounding do the rest, and stop contributing once your balance can grow into a full retirement on its own.

To see when you could stop working entirely, use the FIRE calculator.

Frequently asked questions

Last updated: October 2026. Projections are estimates, not guarantees.