Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world." Unlike simple interest, where you only earn money on your principal, compound interest allows you to earn interest on your interest.
How to use this calculator
- Initial Investment: Enter the amount of money you are starting with today.
- Monthly Contribution: Enter how much you plan to add to the investment every month.
- Interest Rate: Input the expected annual rate of return (e.g., 7% for stock market average).
- Years: How long do you plan to let the money grow?
Why it matters
Small differences in interest rates or time periods can have massive effects on your final balance. Use the graph above to visualize the divergence between your "Principal Invested" (the money you put in) and the "Total Balance" (money + interest).