Interest Calculator

About Interest Calculator

This compound interest calculator helps you understand how your money grows over time with the power of compounding. Add periodic contributions, account for taxes and inflation to get a realistic view of your investment or savings growth.

Compound Interest Formula

Simple vs. Compound Interest

Simple Interest: Interest is calculated only on the principal amount. If you invest $1,000 at 10% simple interest for 3 years, you earn $100 each year for a total of $1,300.

Compound Interest: Interest is calculated on the principal plus accumulated interest. With the same $1,000 at 10% compounded annually for 3 years, you end with $1,331. The extra $31 comes from earning interest on your interest.

Example Calculation

The Rule of 72

A quick way to estimate how long it takes to double your money: divide 72 by the interest rate. For example, at 8% interest, your money doubles in approximately 72 ÷ 8 = 9 years. This rule works best for rates between 6% and 10%.

Compounding Frequency Impact

Frequency	Times/Year	$10,000 @ 5% for 10 Years
Annually	1	$16,288.95
Semi-annually	2	$16,386.16
Quarterly	4	$16,436.19
Monthly	12	$16,470.09
Daily	365	$16,486.65

Understanding Tax Impact

Taxes significantly impact investment returns. If you're in a 25% tax bracket and earn 6% interest, your effective after-tax return is only 4.5%. Tax-advantaged accounts like IRAs and 401(k)s can help you keep more of your earnings.

Inflation Adjustment

Inflation erodes purchasing power over time. The average inflation rate in the U.S. has been around 3% historically. When your investment grows at 5% but inflation is 3%, your real return is only 2%.

Investment Account Types

Account Type	Tax Treatment	Best For
Traditional IRA/401(k)	Tax-deferred growth	Current tax deduction
Roth IRA/401(k)	Tax-free growth	Tax-free retirement income
Taxable Brokerage	Capital gains rates	Flexibility and liquidity
529 Plan	Tax-free for education	College savings
HSA	Triple tax advantage	Healthcare costs

Historical Returns by Asset Class

Investment Type	Average Annual Return	Risk Level
S&P 500 Stocks	~10%	High
Corporate Bonds	~5-6%	Medium
Government Bonds	~3-4%	Low
High-Yield Savings	~4-5%	Very Low
CDs	~3-5%	Very Low

Power of Starting Early

Starting early is one of the most powerful wealth-building strategies. Compare two investors:

• Early Bird: Invests $5,000/year from age 25-35 (10 years, $50,000 total), then stops
• Late Starter: Invests $5,000/year from age 35-65 (30 years, $150,000 total)
• At 7% annual return, Early Bird has $602,070 vs Late Starter's $505,365
• Early Bird invested $100,000 less but ends with $96,705 more!

Tips for Maximizing Growth

• Start Early: Time is your greatest asset in compound growth
• Invest Regularly: Dollar-cost averaging reduces risk and builds discipline
• Reinvest Earnings: Let dividends and interest compound
• Increase Contributions: Raise contribution amounts as income grows
• Minimize Fees: High fees can significantly reduce long-term returns
• Use Tax-Advantaged Accounts: Maximize IRA, 401(k), and HSA contributions
• Stay Invested: Avoid panic selling during market downturns
• Diversify: Spread risk across different asset classes

Common Mistakes to Avoid

• Waiting to start investing - even small amounts matter
• Cashing out investments early and losing compound growth
• Ignoring inflation when calculating real returns
• Paying high fees that eat into returns
• Not maximizing employer 401(k) matching (free money!)
• Timing the market instead of time in the market
• Keeping too much cash earning minimal interest

Emergency Fund vs. Investment

Before investing aggressively, establish an emergency fund:

• Save 3-6 months of expenses in easily accessible accounts
• Use high-yield savings accounts for emergency funds
• Don't invest emergency funds in the stock market
• Once emergency fund is complete, maximize long-term investments

Contribution Timing: Beginning vs. End

Contributing at the beginning of each period (beginning of month/year) allows that money to compound for the entire period, resulting in slightly higher returns than contributing at the end. Over long periods, this difference can be significant.

Realistic Expectations

While historical stock market returns average around 10%, it's important to have realistic expectations:

• Returns vary significantly year to year
• Past performance doesn't guarantee future results
• Consider a conservative 6-8% for planning purposes
• Account for fees, taxes, and inflation
• Real return (after inflation) is what matters for purchasing power