Understanding Compound Interest

Compound interest is one of the most powerful forces in finance. It's the process where the interest you earn on an investment begins to earn interest itself, creating a snowball effect that can significantly grow your wealth over time.

How Compound Interest Works

When you invest money, you earn interest on your initial principal. With compound interest, you also earn interest on the interest you've previously earned. This creates exponential growth rather than linear growth.

Factors Affecting Compound Growth

• Initial Investment: The amount you start with
• Interest Rate: The annual rate of return on your investment
• Time: The length of time you leave your money to grow
• Compounding Frequency: How often interest is calculated (annually, monthly, etc.)
• Additional Contributions: Regular deposits you make to your investment

Using This Calculator

This calculator helps you visualize the power of compound interest. Enter your initial investment, expected rate of return, time period, and any regular contributions you plan to make. The calculator will show you how your money could grow over time, helping you make informed decisions about your long-term financial planning.

Example Scenario

Let's say you invest $10,000 initially and contribute $200 monthly with a 7% annual return:

• After 10 years: ~$49,000
• After 20 years: ~$135,000
• After 30 years: ~$310,000

This demonstrates how time and regular contributions amplify the power of compound interest.