Finance
Compound Interest Calculator
Calculate future portfolio growth by customizing interest rates, compounding frequency, and regular additions.
Inputs
Results
Future Investment Value
$0.00
Total Principal Deposited
$0.00
Total Interest Earned
$0.00
How It Works
Compound interest is interest earned on top of previously earned interest. The calculator projects this by taking your starting principal, adding regular contributions, and calculating interest gains at each step. The growth is simulated monthly: at the start of each month, the monthly addition is added to the balance, and monthly compounding is applied. Over long horizons, this compounding effect yields exponential growth.
Formula Used
Future Value = P × (1 + r/12)^n + PMT × [((1 + r/12)^n − 1) / (r/12)] × (1 + r/12)
This formula combines the future value of the lump-sum principal and the future value of an ordinary annuity for the monthly contributions, both compounded monthly. It models the exponential growth of an investment portfolio where interest is earned on both the principal and the accumulated contributions.
Worked Example
Here is a step-by-step example of how these values are calculated:
Initial Deposit
$10,000
Monthly Contribution
$200
Annual Rate
8%
Horizon
10 Years
Result: Future Investment Value: $58,358.91 (comprising $34,000 principal deposits and $24,358.91 total interest earned).
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the initial principal amount. Compound interest is calculated on the principal plus all interest accumulated in previous periods, accelerating portfolio growth over time.
How does compounding frequency impact earnings?
The more frequently interest is compounded (e.g. daily vs. annually), the faster your portfolio grows. Daily compounding yields slightly more than monthly compounding for the same nominal annual percentage rate.