What is Compound Interest?
Compound interest is often called the "eighth wonder of the world." It is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
In simpler terms, it's interest on interest. This effect causes wealth to grow faster over time compared to simple interest, which is calculated only on the principal amount.
How to Use This Calculator
- Initial Investment: The amount of money you are starting with.
- Monthly Contribution: How much you plan to add to your investment each month.
- Annual Interest Rate: The expected yearly return on your investment (e.g., 7% is a common average for stock market returns).
- Time Period: How many years you plan to let the money grow.
The Power of Starting Early
Time is the most important factor in compound interest. The longer your money is invested, the more time it has to compound. Even small monthly contributions can grow significantly over 20 or 30 years.