How to Calculate Compound Interest — Step-by-Step Guide
Learn how to use the compound interest calculator to project investment growth. Covers return rates, contribution amounts, and how to read the results.
Step 1: Enter your starting principal This is the amount you're investing today. It can be as small as $100 — the most important variable is time, not the starting amount.
Step 2: Set a monthly contribution Enter how much you'll add each month. Regular contributions (even small ones) dramatically accelerate growth. $200/month invested consistently for 30 years produces more than a $50,000 lump sum invested once.
Step 3: Enter the annual interest rate Use 6–8% for a diversified stock market index fund, 4–5% for bonds or high-yield savings, or the exact rate for your specific account.
Step 4: Choose compounding frequency Monthly compounding is standard for savings accounts and many investment accounts. Daily compounding produces slightly higher results but the difference is minimal for long-term projections.
Step 5: Set the number of years Enter how many years you plan to keep the money invested. The most dramatic growth happens in the later years — year 25 to year 30 often adds as much as the first 20 years combined.
Step 6: Review the year-by-year breakdown The detailed table shows your balance at the end of every year, separating the amount you contributed from the investment growth. This makes the power of compound growth visually clear.