About Compounding
Compounding is a free, open-source compound interest calculator designed to help you understand how your investments grow over time.
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Albert Einstein reportedly called it the "eighth wonder of the world" — because he who understands it, earns it; he who doesn't, pays it.
Unlike simple interest (which only earns on your original investment), compound interest lets your interest earn interest. Over time, this creates an exponential growth curve that can dramatically increase your wealth.
The Formula
Where: P = principal, r = annual rate, n = compounding periods/year, t = years, PMT = periodic contribution
Why Inflation Matters
A dollar today buys more than a dollar in 10 years. Our calculator shows both nominal values (what your account statement will show) and inflation-adjusted values (what your money can actually buy). This gives you a realistic picture of your future purchasing power.
Compounding Frequency
The more frequently interest compounds, the more you earn:
- Monthly — 12 times per year (best for savings accounts)
- Quarterly — 4 times per year (common for bonds)
- Annually — once per year (simplest model)
Quick Example
Invest $10,000 at 7% annual return for 30 years:
- ✅ Without contributions: grows to ~$76,123
- ✅ Add $500/month: grows to ~$636,438
- ⚠️ After 3% inflation: worth ~$262,485 in today's dollars
This shows why starting early and contributing regularly matters so much!