Calculate Your Investment Growth
What is Compound Interest?
Compound interest is the process where interest earned on an investment is added to the principal, so that future interest calculations include both the original amount and previously earned interest. This creates a "snowball effect" where your money grows exponentially over time.
The Formula
P = Principal (initial investment)
r = Annual interest rate (decimal)
n = Compounding frequency per year
t = Time in years
A = Final amount (future value)
The earlier you start investing, the more powerful compound interest becomes. Even small regular contributions can grow significantly over decades!
Why It Matters
Understanding compound interest helps you make smarter financial decisions for retirement planning, savings goals, and investment strategies. The key factors that maximize growth are: higher interest rates, more frequent compounding, and longer time horizons.
- Convert interest rate:
r = 5% ÷ 100 = 0.05 - Calculate interest per period:
0.05 ÷ 12 = 0.004167 - Calculate total number of periods:
12 × 10 = 120 periods - Substitute into formula:
A = 1000 × (1 + 0.004167)120 - Result:
A ≈ $1,647.01💰
| Year | Starting Balance | Interest Earned | Ending Balance |
|---|