Calculate how your investment grows over time with compound interest, optional monthly contributions and inflation-adjusted real value.
Compound interest means earning interest not only on your initial principal, but also on every dollar of interest you've already accumulated. This creates an exponential growth curve — the longer you leave money invested, the faster it grows. Even a modest annual return of 7% doubles an investment in roughly 10 years (the Rule of 72).
The key variables are the principal (how much you start with), the interest rate, the compounding frequency (how often interest is applied), and time. Regular monthly contributions amplify growth further by continuously adding new "seeds" that themselves start compounding.
For a lump sum investment:
A = P × (1 + r/n)n×t
Where P = principal, r = annual rate (decimal), n = compounding periods per year, t = years.
When you add regular monthly contributions (PMT), the calculator converts the nominal rate to an effective monthly rate (rm = (1 + r/n)n/12 − 1) and applies the future value of an annuity formula, then sums both components for the total balance.
The more often interest compounds, the higher your actual return. Daily compounding yields the most; annual compounding the least. In practice, the difference between daily and monthly compounding is small — on a $10,000 investment at 7% for 10 years, daily compounding earns about $20 more than monthly. The biggest gains come from time in the market, not from frequency alone.
The EAR converts any nominal rate into its true annual equivalent: EAR = (1 + r/n)n − 1. A 6% nominal rate compounded monthly gives EAR ≈ 6.168%. Banks often advertise APY (Annual Percentage Yield), which is the same concept. Use EAR to compare investment products with different compounding frequencies on an equal footing.
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which only applies to the principal), compound interest grows exponentially — often called "interest on interest."
The basic formula is A = P(1 + r/n)n×t, where P is the principal, r is the annual interest rate (as a decimal), n is compounding periods per year, and t is years. With regular monthly contributions, an annuity future-value component is added for each deposit period.
More frequent compounding yields a slightly higher return: daily > monthly > quarterly > semi-annually > annually. However, the differences are modest at typical interest rates. The most impactful factor is the length of time your money remains invested.
Regular contributions dramatically accelerate growth. Each new deposit starts compounding immediately, so even small monthly amounts — say $100/month — can more than double the final balance compared to a one-time lump sum investment of the same total over many years.
The EAR (also called APY) is the true annual return when compounding is factored in: EAR = (1 + r/n)n − 1. Use it to compare accounts or investments that compound at different frequencies — it levels the playing field.
Inflation erodes purchasing power over time. The "real" value of your investment is the nominal final balance divided by cumulative inflation: Real Value = A / (1 + inflation rate)t. Enter an inflation rate in the optional field to see how much your money will be worth in today's dollars.