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Compound interest earns the reputation behind the phrase often attributed to Einstein — "the eighth wonder of the world": the interest you earn is added to the principal, and the next period the entire grown amount earns interest. Interest earning interest produces growth far above simple interest over time — and the more frequently it compounds (yearly, monthly), the faster it grows.
Enter your principal, annual rate, term and compounding frequency, and see how the money multiplies and its maturity value.
How is it calculated?
Formula
Maturity = Principal × (1 + rate ÷ n)^(n × years). Here n is how many times per year interest is added to the principal: 1 for annual, 12 for monthly, 365 for daily.
Why compounding frequency matters
The same 40% annual rate yields more when compounded monthly than yearly, because interest joins the principal more often. For 100,000 at 40% over 3 years:
| Compounding | Maturity |
|---|---|
| Annual (n=1) | 274,400 |
| Monthly (n=12) | 325,579 |
The ~51,000 gap comes purely from how often interest earns interest.
The power of time
In compound interest the real lever is time. Over short terms simple and compound interest stay close; as the term lengthens the gap widens exponentially. That is why small savings started early can overtake large savings started late — for regular contributions a savings calculator adds those in.
Don't forget the real return
A high nominal compound return can be misleading if inflation is high. To see your true gain, subtract inflation from the nominal return with a real-return calculator.
Worked example
Invest 100,000 at 40% for 3 years compounded annually: end of year 1 is 140,000, year 2 is 196,000, year 3 is 274,400. The same money under simple interest would stay at 220,000 — the 54,400 difference is entirely "interest earning interest." Compounded monthly (n=12) the maturity rises to 325,579: showing that frequency alone adds 51,000.
FAQ
How is compound interest calculated?+
With principal × (1 + rate ÷ n)^(n × years), where n is how many times per year interest is added to the principal. For 100,000 at 40% over 3 years compounded annually, the maturity is 274,400.
How much more does compound interest earn than simple interest?+
A little over short terms, a lot over long ones. 100,000 at 40% over 3 years is 220,000 simple but 274,400 compound; the gap grows exponentially as the term lengthens.
How does compounding frequency affect the result?+
The more often interest is added to the principal, the higher the return. The same 40% over 3 years gives 274,400 compounded annually but 325,579 compounded monthly.
What does 40% annual, compounded monthly, actually work out to?+
At 3.33% per month, the effective annual rate approaches 48% (1.0333^12 − 1). Nominal and effective rates differ for this reason; the tool shows the effective growth directly as an amount.
Why is compound interest so important for saving?+
Because the real lever is time: small amounts started early can overtake large amounts started late, thanks to interest earning interest. For regular contributions, use a savings calculator.
Is a high compound return always good?+
If the nominal return is below inflation you lose money in real terms. To see the true gain, use a real-return calculator to view inflation-adjusted returns.