Compound Interest Calculator
August 20, 2018
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Here's how to use NerdWallet's compound interest calculator:
- Enter an initial deposit.
- Next, enter a monthly or annual contribution — say, $50 to $200, depending on what you can afford. Or, you can enter $0.
- With each entry you make, watch the Future Balance amount change automatically.
- The calculator includes a sample initial deposit, investment time span and rate of return. Plug in different numbers to see how changes to those figures can affect your future balance.
- Are you saving enough money? Compare high-yield savings accounts and CDs for the best rates.
NerdWallet's compound interest calculator will show you how much your savings and investments can grow over time.
How compound interest works
Compound interest is simple: It’s the interest you earn on both your original deposit and on the interest you continue to accumulate. Compound interest allows your savings to grow faster over time.
In an account that pays compound interest, the return is added to the original principal at the end of every compounding period. That's typically daily or monthly. Each time interest is calculated and added to the account, the larger balance results in more interest earned than before. Note that high-interest savings accounts earn money faster than accounts with lower yields.
For a simple, quick explainer, see What Is Compound Interest?
Compounding investment returns
When you invest in the stock market, you don’t earn a set interest rate. Instead, the return is based on the change in the value of your investment. When the value of your investment goes up, you earn a return.
If you leave your money and the returns you earn invested in the market, those returns are compounded over time in the same way that interest is compounded.
Investment returns will vary year to year and even day to day. In the short term, investments such as stocks or stock mutual funds may actually lose value. But over a long time horizon, history shows that a diversified growth portfolio can return an average of 6% to 7% annually.
Compound interest can help fulfill your long-term savings and investment goals, especially if you let it go to work over several decades.