Compound Interest Calculator
Your Investment Summary
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Understanding Compound Interest
Compound interest is the addition of interest to the principal sum of an investment or loan, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus all the accumulated interest from previous periods.
How Compound Interest Works
Compound interest grows your investment at an accelerating rate because the interest is calculated on the initial principal plus all the accumulated interest from previous periods. Key factors that affect your compound interest earnings include:
- Initial Principal: The starting amount of your investment
- Interest Rate: The percentage rate at which your investment grows
- Investment Duration: How long you keep your money invested
- Compounding Frequency: How often interest is calculated and added to your principal
- Additional Contributions: How much and how often you add to your investment
Power of Compound Interest
The power of compound interest becomes more pronounced over longer investment periods. Albert Einstein is often quoted as referring to compound interest as the "eighth wonder of the world" because of its potential to grow wealth exponentially over time.
Investment Tips
Here are some tips to maximize your compound interest earnings:
- Start investing as early as possible to take advantage of time
- Choose investments with higher interest rates
- Reinvest your earnings instead of withdrawing them
- Make regular contributions to your investment
- Select an appropriate compounding frequency