Compound Interest Calculator

Compound interest is often called the "eighth wonder of the world" because of its powerful ability to grow wealth over time. Unlike simple interest, which only calculates interest on the principal amount, compound interest calculates interest on both the principal and previously earned interest.

How Compound Interest Works

When you invest money, you earn interest on your initial investment. With compound interest, that earned interest is added to your principal, and future interest calculations are based on this new, larger amount. This creates a snowball effect where your money grows exponentially over time.

The Power of Time

The longer you leave your money invested, the more powerful compound interest becomes. Starting early, even with smaller amounts, can result in significantly larger returns than starting later with larger amounts. This is why financial advisors often emphasize the importance of starting to invest as early as possible.

Factors That Affect Compound Interest

• Principal Amount: The initial amount you invest
• Interest Rate: The annual percentage rate of return
• Time Period: How long you leave your money invested
• Compounding Frequency: How often interest is calculated and added to your principal
• Regular Contributions: Additional money you add to your investment over time

Investment Strategies

To maximize the benefits of compound interest, consider diversifying your investments across different asset classes, maintaining a long-term perspective, and making regular contributions to your investment accounts. Remember that higher returns often come with higher risks, so it's important to choose investments that align with your risk tolerance and financial goals.