Compound Interest Calculator: Formula, Examples, and the Rule of 72

Compound interest has a reputation problem. It gets sold like magic.

The real idea is better because it is useful: interest or investment gains can become part of the balance that earns the next round of gains. Time repeats the process. Deposits add fuel. Fees, taxes, losses, and debt can pull the other way.

No mystery. No fake Albert Einstein quote required.

What is compound interest?

Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus earlier interest that has been added to the balance.

If $1,000 earns 5% once a year:

after year one, the balance is $1,050;

after year two, 5% applies to $1,050, so the balance is $1,102.50; and

after year three, the balance is about $1,157.63.

The second and third years earn interest on earlier interest. That is compounding.

Each completed period can raise the base used in the next period. The rate and result are not guaranteed unless the account contract says they are.

The compound interest formula

For one deposit with no later contributions:

A = P(1 + r/n)^(nt)

A is the ending amount.

P is the starting principal.

r is the annual rate written as a decimal.

n is the number of compounding periods per year.

t is the number of years.

Monthly deposits use a second formula because each deposit has a different amount of time to grow. A compound interest calculator handles both pieces and makes it easier to test a range of rates.

Do not hide the assumptions. A clean calculator answer can still be a bad forecast.

Compound interest example with $100 a month

Suppose $100 is added at the end of every month. The example assumes a constant 7% annual return, compounded monthly, with no starting balance, tax, fees, or losses.

The math uses the standard future-value formula and the same input structure as the Investor.gov compound interest calculator. It is an illustration, not a promised return.

Time | Money deposited | Illustrated ending value | Growth above deposits
10 years | $12,000 | $17,308 | $5,308
20 years | $24,000 | $52,093 | $28,093
30 years | $36,000 | $121,997 | $85,997

The jump in the last decade is not a special bonus. Earlier deposits have had more rounds to grow, and prior gains are part of the later balance.

Real investments do not return 7% in a straight line. They can fall hard, recover slowly, or produce less than expected. Use low, middle, and high assumptions instead of trusting one number.

How often does interest compound?

An account may compound daily, monthly, quarterly, or annually. More frequent compounding can raise the effective annual yield when the stated rate is the same.

For deposit accounts, compare annual percentage yield, or APY. APY includes the effect of compounding under the disclosure rules. For debt, annual percentage rate, or APR, is an important comparison, but card balances, fees, daily periodic rates, and payment timing still affect the dollars paid.

Read the account terms. "Compounded daily" does not mean a savings account with a tiny rate will outrun an account with a much higher APY.

What is the Rule of 72?

The Rule of 72 gives a rough doubling time:

72 / annual rate = approximate years to double

At 6%, the estimate is 12 years. At 8%, it is 9 years.

It is a shortcut, not an account guarantee. It works best as a quick estimate for moderate positive rates. It does not include deposits, changing returns, fees, taxes, or withdrawals.

The same shortcut can expose expensive debt. At a 24% rate, 72 divided by 24 is about three. That does not mean a card balance will follow a neat three-year path, because payments and account rules change it. It does show why a high rate deserves attention.

Compound interest can work in both directions

Compounding is a mechanism. Whether it helps or hurts depends on the account, rate, fees, payments, tax, and risk.

Saving and investing

Interest, dividends, and gains may stay in the account and take part in future growth. Regular deposits can matter more than finding a perfect entry date.

Fees

An annual expense reduces the amount left to compound. The difference looks small in year one and can become large over decades. Compare the expense ratio, advice fee, account fee, and trading cost.

Debt

Interest on an unpaid balance raises the cost. Some debts can charge interest on interest or use daily balance methods. Paying only the minimum may keep the balance around far longer than expected.

How to use a compound interest calculator honestly

Enter:

the money already invested;

the amount and timing of new deposits;

the number of years;

a range of annual returns;

the compounding frequency; and

known fees.

Then run a bad case. Lower the return. Add a fee. Delay the start. Pause deposits for a year. If the goal fails after one ordinary setback, the plan needs more room.

For an investment projection, also ask:

Is the return before or after inflation?

Are taxes included?

Does the rate match the risk of the actual investment?

Are deposits made at the beginning or end of each month?

Is the result in today's buying power or future dollars?

That last question matters. A future balance can look huge while buying less than the same number buys now. See how inflation changes purchasing power.

Common compound interest questions

Does compound interest guarantee wealth?

No. A guaranteed deposit rate may be stated for a set term, but market returns are uncertain. Time can amplify gains, fees, and losses.

Is monthly compounding better than annual compounding?

It produces a little more growth when the stated rate and every other term are equal. The actual APY matters more than the word monthly.

What rate should I use in an investment calculator?

Use a range tied to the actual mix, fees, and time. A high rate makes every plan look easy. It does not make the rate likely.

Is starting early more important than investing more?

Both matter. Starting earlier adds more rounds. Investing more adds more principal. If you started late, a higher sustainable contribution can still make a large difference.

Can I calculate compound interest in a spreadsheet?

Yes. Use the future-value function and specify rate per period, number of periods, payment, starting value, and whether deposits happen at the start or end of each period.

This guide is general education, not a return forecast or recommendation.

Sources

Investor.gov, Compound Interest Calculator. Accessed July 31, 2026.

Investor.gov, What Is Compound Interest?. Accessed July 31, 2026.

Investor.gov, How Fees and Expenses Affect Your Portfolio. Accessed July 31, 2026.

Investor.gov, Saving and Investing Roadmap. Accessed July 31, 2026.

Consumer Financial Protection Bureau, Credit Card Interest and APR. Accessed July 31, 2026.

Consumer Financial Protection Bureau, How Card Interest Is Calculated. Accessed July 31, 2026.

Consumer Financial Protection Bureau, Regulation DD APY disclosures. Accessed July 31, 2026.

Federal Deposit Insurance Corporation, Compound Interest. Accessed July 31, 2026.

IRS, Publication 550, Investment Income and Expenses. Accessed July 31, 2026.

FINRA, Using the Fund Analyzer. Accessed July 31, 2026.