Compound Interest Calculator 2026

Understanding the difference between simple and compound interest is crucial for financial literacy. ### Simple Interest **Formula:** A = P(1 + rt) Interest is calculated only on the principal. Each year, you earn the same amount. **Example:** $10,000 at 5% for 10 years - Year 1: $500 interest - Year 5: $500 interest (still the same!) - Year 10: $500 interest - **Total after 10 years: $15,000** ### Compound Interest **Formula:** A = P(1 + r)^t (annual compounding) Interest is calculated on principal PLUS previously earned interest. Each year, you earn more than the last. **Example:** $10,000 at 5% for 10 years - Year 1: $500 interest (balance: $10,500) - Year 5: $552 interest (balance: $12,763) - Year 10: $776 interest (balance: $16,289) - **Total after 10 years: $16,289** ### The Compound Interest Advantage | Years | Simple Interest | Compound Interest | Difference | |-------|-----------------|-------------------|------------| | 10 | $15,000 | $16,289 | $1,289 | | 20 | $20,000 | $26,533 | $6,533 | | 30 | $25,000 | $43,219 | $18,219 | | 40 | $30,000 | $70,400 | $40,400 | **Key Insight:** The longer your time horizon, the more powerful compound interest becomes. After 40 years, compound interest nearly DOUBLES simple interest!

The **Rule of 72** is a simple formula to estimate how long it takes for your money to double with compound interest. **Formula: Years to Double = 72 ÷ Interest Rate** ### Examples | Interest Rate | Years to Double | |---------------|-----------------| | 3% | 24 years | | 6% | 12 years | | 9% | 8 years | | 12% | 6 years | **Real-World Application:** - Your 401(k) averages 8% annually? It doubles every 9 years. - At age 25, $10,000 becomes $20,000 by 34, $40,000 by 43, $80,000 by 52, $160,000 by 61! **Reverse Application (Debt):** - Credit card at 18% APR? Your balance doubles in 4 years if unpaid. - $5,000 debt becomes $10,000, then $20,000, then $40,000... Pay it off FAST! ### Why It Works The Rule of 72 is a simplification of the natural logarithm formula: **Exact Years = ln(2) / ln(1 + r)** For most realistic interest rates (3-12%), the Rule of 72 is accurate within 0.5 years.

See compound interest in action with realistic examples. ### Scenario 1: The Early Start vs Late Start **Person A:** Starts investing at age 25 - Monthly contribution: $300 - Interest rate: 7% - Stops contributing at age 35 (10 years, $36,000 invested) - Lets money grow until age 65 (30 more years of compounding) - **Result at 65: $372,000** **Person B:** Starts investing at age 35 - Monthly contribution: $300 - Interest rate: 7% - Contributes until age 65 (30 years, $108,000 invested) - **Result at 65: $367,000** **Shocking Result:** Person A invested LESS money ($36K vs $108K) but ended with MORE ($372K vs $367K) because they started 10 years earlier. Those extra 10 years of compounding were worth more than $72,000 in additional contributions! ### Scenario 2: Retirement Savings by Age Starting with $0, investing $500/month at 8% return: | Starting Age | Amount at 65 | Total Invested | |--------------|--------------|----------------| | 25 | $1,747,000 | $240,000 | | 30 | $1,117,000 | $210,000 | | 35 | $698,000 | $180,000 | | 40 | $426,000 | $150,000 | | 45 | $253,000 | $120,000 | | 50 | $146,000 | $90,000 | **Lesson:** Starting at 25 vs 50 means 12× more wealth despite only 2.7× more contributions. Time is priceless. ### Scenario 3: The Cost of Withdrawing Early $10,000 invested at age 25, 8% annual return, left until age 65: - **Never withdrawn:** $217,245 - **$5,000 withdrawn at age 40:** $113,283 (lost $104,000!) - **$5,000 withdrawn at age 50:** $144,965 (lost $72,000!) **Lesson:** Early withdrawals don't just cost you the amount withdrawn—they cost you decades of compound growth on that money. For long-term retirement planning that accounts for inflation's impact on your compound gains, our [retirement calculator](https://vercalc.com/finance/retirement-calculator) provides a comprehensive view of your financial future.

See compound interest in action with realistic examples. ### Scenario 1: The Early Start vs Late Start **Person A:** Starts investing at age 25 - Monthly contribution: $300 - Interest rate: 7% - Stops contributing at age 35 (10 years, $36,000 invested) - Lets money grow until age 65 (30 more years of compounding) - **Result at 65: $372,000** **Person B:** Starts investing at age 35 - Monthly contribution: $300 - Interest rate: 7% - Contributes until age 65 (30 years, $108,000 invested) - **Result at 65: $367,000** **Shocking Result:** Person A invested LESS money ($36K vs $108K) but ended with MORE ($372K vs $367K) because they started 10 years earlier. Those extra 10 years of compounding were worth more than $72,000 in additional contributions! ### Scenario 2: Retirement Savings by Age Starting with $0, investing $500/month at 8% return: | Starting Age | Amount at 65 | Total Invested | |--------------|--------------|----------------| | 25 | $1,747,000 | $240,000 | | 30 | $1,117,000 | $210,000 | | 35 | $698,000 | $180,000 | | 40 | $426,000 | $150,000 | | 45 | $253,000 | $120,000 | | 50 | $146,000 | $90,000 | **Lesson:** Starting at 25 vs 50 means 12× more wealth despite only 2.7× more contributions. Time is priceless. To see how different investment returns affect your retirement timeline, use our [ROI calculator](https://vercalc.com/finance/roi-calculator) to compare various investment strategies.