Compound Interest Calculator
See how your money can grow over time. Calculate the future value of your investments considering initial principal, monthly contributions, and compounding frequency.
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Understanding Compound Interest
Albert Einstein supposedly called compound interest the "eighth wonder of the world." Unlike simple interest, which only pays interest on the initial money you deposited, compound interest pays you interest on your interest. Over long periods, this causes your money to grow exponentially.
The Variables
- Time: This is the most powerful variable. Giving your money 30 years to grow instead of 20 years will drastically increase your final balance, far more than saving slightly more money per month.
- Interest Rate: A realistic stock market index fund (like the S&P 500) historically returns about 7-10% annually before inflation. A high-yield savings account might return 4-5%.
- Compounding Frequency: How often the bank/broker calculates your interest and adds it to your balance. Daily compounding yields slightly more money than Annual compounding because your interest starts earning its own interest immediately.
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