Compound Interest Calculator

The calculator results are shown in real time by adjusting the sliders or entering numbers. If you click on “View Report”, you can additionally see the returns, the APY percentage, and the results with different compounding terms (yearly, quarterly, monthly and daily).

Using a compound interest calculator can transform abstract numbers into a concrete vision of your financial future. For instance, if you start with an initial investment of $10,000 at a 5% annual interest rate, compounded monthly, and add $100 each month, the results are significant. After 20 years, your total contributions would be $34,000, but your investment could grow to over $70,000. This “interest on interest” effect is what makes early and consistent saving so powerful, turning small, regular contributions into substantial wealth over the long term.

These are the definitions providing more information for each field with the compound interest calculator.

• Investment amount: The amount of your initial investment.
• Interest rate: The annual interest rate for your investment. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor’s 500® (S&P 500®) for the 10 years ending December 31, 2023, had an annual compounded rate of return of 15.20%, including reinvestment of dividends. From January 1, 1970 to December 31, 2023, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.90% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% APY or less but carry significantly lower risk of loss of principal balances. It is important to remember that these scenarios are hypothetical and that future rates of return can’t be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principle on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
• Years: Number of years for this investment.
• Compound interest: Interest on an investment’s interest, plus previous interest. The more frequently this occurs, the sooner your accumulated interest will generate additional interest. You should check with your financial institution to find out how often interest is being compounded on your particular investment.
• Yearly APY: Annual percentage yield received if your investment is compounded yearly.
• Quarterly APY: Annual percentage yield received if your investment is compounded quarterly.
• Monthly APY: Annual percentage yield received if your investment is compounded monthly.
• Daily APY: Annual percentage yield received if your investment is compounded daily.

Compound interest is sometimes called the eighth wonder of the world, and for good reason. It is the process where you earn interest not only on your initial principal but also on the accumulated interest from previous periods. In simpler terms, your money starts making money for you. This creates a snowball effect that can dramatically accelerate the growth of your savings or investments over time.

Understanding how compounding works begins with a few key components. First, there’s the principal, which is the amount of money you start with—your initial investment or savings. Next, the interest rate determines how much your money will grow each year. This rate is usually expressed as a decimal, such as 0.05 for 5%. Compounding also depends on how frequently interest is added to your balance. This could happen annually, quarterly, monthly, or even daily. The more often interest is compounded, the faster your money can grow. Finally, the time your money remains invested plays a crucial role; the longer it stays untouched, the more pronounced the compounding effect becomes.

All of these elements come together in the compound interest formula: A = P(1 + r/n)^(nt). In this equation, “A” stands for the future value of your investment, “P” is your principal, “r” is the annual interest rate, “n” represents how many times interest is compounded per year, and “t” is the total number of years your money will be growing. This formula captures how your money builds upon itself with each compounding period, ultimately leading to much greater growth than with simple interest alone.

Let’s illustrate with an example. Suppose you invest $1,000 (your principal) in an account with a 5% annual interest rate.

• With simple interest, you would earn $50 each year ($1,000 x 0.05). After 20 years, you’d have your original $1,000 plus $1,000 in interest ($50 x 20), for a total of $2,000.
• ound interest compounded annually, in the first year, you earn $50. Your new principal becomes $1,050. In the second year, you earn 5% on $1,050, which is $52.50. Your principal is now $1,102.50. This process continues, and after 20 years, your investment would grow to approximately $2,653.

The difference of over $650 highlights the power of compounding. The more frequently interest is compounded, the faster your money grows, as you start earning interest on your interest even sooner. This is why it’s a fundamental concept for anyone looking to build long-term wealth.

Whether you’re growing your savings or borrowing for a big purchase, compound interest works the same way, it builds over time, either by adding to your earnings or increasing what you owe.

Compound interest on a loan means you’re paying interest not just on the original amount you borrowed, but also on the interest that accumulates over time. In other words, as unpaid interest is added to your balance, the total amount you owe grows faster. This can make long-term loans more expensive if you only make minimum payments or let interest build up. However, by paying more than the minimum or making payments more frequently, you can reduce the compounding effect and save money in the long run.

Loan amortization is the process of paying off a debt over time through regular, fixed payments. Each payment is structured to cover both the interest accrued on the loan and a portion of the principal balance. When you take out a loan, such as a mortgage or an auto loan, you agree to a repayment schedule. An amortization schedule is a table that details each payment, showing how much goes toward interest and how much goes toward reducing the principal. A loan amortization calculator can generate this schedule for you, providing a clear picture of your repayment journey.

Loan amortization is a systematic process where each payment you make is divided between paying off interest and reducing the loan principal. In the beginning, most of your payment goes toward interest because your outstanding balance is at its highest. As you continue making payments, the portion applied to interest decreases, and more of each payment goes toward reducing the principal. This gradual shift continues with each payment, and by the end of your loan term, nearly all of your payment is applied to the principal.

Consider a simple example: Suppose you take out a $10,000 loan at a 6% annual interest rate, to be paid back over three years with monthly payments. Using a loan payment calculator, you would find that your fixed monthly payment is about $304.22. For your first payment, the interest portion for the month is roughly $50 (calculated as $10,000 multiplied by 0.06, divided by 12). The remainder of your payment, about $254.22, goes toward reducing the principal. With your second payment, since the principal is now slightly less, the interest amount decreases a bit, allowing even more of your payment to be applied to the principal.

This cycle repeats for each payment until the loan is paid off. Over the full three years, you would end up paying a little over $10,950 in total, which includes about $952 in interest. An amortization schedule provides a detailed breakdown of each payment, showing exactly how much goes toward interest and how much reduces the principal. Understanding this process highlights why making even small extra payments toward the principal can reduce the total interest paid and help you pay off the loan more quickly. Using calculators and schedules to visualize this can be a powerful tool for anyone planning to borrow.

Understanding compound interest and loan amortization equips you to make smarter financial choices. On one hand, you can harness the power of compounding to build your savings and investments. On the other, you can strategically manage your debts to minimize interest costs. Using online tools like a compound interest calculator and a loan amortization calculator allows you to visualize different scenarios and create a solid plan for achieving your financial goals, whether that’s saving for retirement or paying off a loan ahead of schedule.

The friendly financial experts at First Bank of the Lake offer SBA loans designed with the needs of our customers in mind. We financed more than $600 million in SBA loans over the past 12 months and are ranked as the 15th largest SBA lender in the United States in 2024. Since our founding in October 1985, we have offered outstanding customer service and the best financial options for their needs. Today, First Bank of the Lake offers loans for business enterprises across the United States. To learn more about our bank or about SBA loans, visit our website or check us out on Facebook or LinkedIn. Our friendly and knowledgeable staff members will be happy to discuss your loan options with you and to help you achieve the highest degree of success in your chosen industry. Please contact us at (888) 828-5689 to get your business loan questions answered today!

Check out our other financial calculators:

• Franchise loan calculator
• Business loan calculator
• SBA loan calculator
• SBA 7a loan calculator
• SBA 504 loan calculator
• Commercial Loan calculator