Understanding Compound Interest
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Albert Einstein reportedly called it "the eighth wonder of the world" — it allows wealth to grow exponentially over time.
Simple Interest
Calculated only on the principal. e.g. $1,000 at 10%/year = $100/year, every year.
Compound Interest
Calculated on principal + accumulated interest. The same $1,000 grows faster each year.
Compounding Frequency
The more often interest compounds (daily > monthly > annually), the faster growth occurs.
Regular Contributions
Adding even small amounts monthly dramatically accelerates long-term growth.
The Formula
For a lump sum: A = P(1 + r/n)^(nt) — where P = principal, r = annual rate, n = compounding frequency, t = years. With regular contributions, each payment is calculated separately and summed.
Who Should Use This Tool?
This calculator is ideal for anyone saving for retirement, a home, education, or any long-term financial goal. It helps you visualize the impact of starting early, increasing contributions, or finding a better interest rate.