Compound interest visualized
Humans have a hard time understanding exponential growth. The compound interest calculator is built to be a "sandbox" for you to test out a variety of variables that affect home money grows over time. This tool works for both interest on your investments and your debts. After all, your debts are someone's investment.
- Initial Investment: The starting amount or current value of the account.
- Monthly Contribution: If you will be adding money to your investment every month. This is the power of compounding!
- Interest Rate %: This is the percent of interest paid to you as a reward for letting someone borrow your money. This can also be the expected return if looking at a stock (S&P 500 historical rate of return is 8-10%).
- How Long: The number of years you plan to be invested. See how a small initial investment can grow over the long term.
- Compounding Frequency: Interest can compound on different time intervals. Many loans and investments are compounded annually, also known as "annual percentage rate" or APR. Credit cards and other revolving lines of credit are more flexible and therefore compound more frequently. Credit card interest rate typically compounds daily.