How Compound Interest Works
Compound interest is interest earned on both your original money and on the interest you've already earned. It's why starting early matters — your money makes money, and that money makes more money.
The formula: A = P(1 + r/n)^(nt) + PMT × ((1 + r/n)^(nt) - 1) / (r/n)
Where P = principal, r = annual rate, n = compound frequency, t = years, PMT = periodic contribution.
Frequently Asked Questions
What's the difference between simple and compound interest?
Simple interest only earns on the principal. Compound interest earns on principal plus accumulated interest — so it grows faster over time.
How much should I invest monthly?
A common guideline is 15-20% of your income. Even small amounts add up — $100/month at 7% for 30 years becomes over $120,000.
Does compounding frequency matter?
Yes, but the difference is small at typical rates. Monthly vs annual compounding at 7% differs by about 0.2% per year.
Is this calculator accurate?
Yes, it uses the standard compound interest formula. Actual investment returns vary and are not guaranteed.