Compound Interest Calculator
Use this simple calculator to see how your savings and investments can grow over time with the power of compound interest.
Our compound interest calculator is designed to help you visualise how your savings or investments could grow over time, whether you contribute regularly or not. By showing how compound interest amplifies returns, our tool can demonstrate how even small investments now can influence your financial future. Curious about making the most of your returns?
Scroll down to explore how compound interest works and how to make the most of it. You can even experiment with different contribution scenarios to see how much you stand to gain. Start planning today!
What is compound interest?
Compound interest is the process where interest earned is reinvested back into your principal, allowing future interest to be calculated on both the original sum and accumulated interest. This creates a "snowball effect" where your investment grows exponentially over time.
Unlike simple interest, which is based solely on the principal, compound interest magnifies your returns, especially when combined with regular investments over time. This powerful strategy can significantly accelerate the growth of your savings or investments, maximising long-term wealth potential.
Example: An initial $10,000 investment at a 5% annual rate over 20 years clearly shows how compound interest outpaces simple interest and no-interest scenarios.
After 20 years, an initial $10,000 investment with no compounding (simple interest) would grow to $20,000, while the same investment with compound interest would increase to $26,532.98!
Compounding with additional contributions
While compound interest alone can significantly boost your savings, consistent contributions can supercharge your growth. In the example above, starting with $10,000 at a 5% annual yield, compounded yearly over 20 years, yields $16,523.98 in interest.
However, by contributing an additional $100 at the end of each month, you would earn a total of $32,212.12 in interest from a total deposit of $34,000 ($10,000 principal + $24,000 contributions). This demonstrates how the combination of compounding and regular contributions work together to build long-term wealth
Visualising compound interest with additional contributions
| Year | Principal ($) | New Contributions ($) | Interest Earned ($) | Total Balance ($) |
|---|---|---|---|---|
| 0 | 10,000 | 0 | 0 | 10,000 |
| 1 | 10,000 | 1,200 | 500 | 11,700 |
| 2 | 10,000 | 2,400 | 1,085 | 13,485 |
| 3 | 10,000 | 3,600 | 1,759 | 15,359 |
| 4 | 10,000 | 4,800 | 2,527 | 17,327 |
| 5 | 10,000 | 6,000 | 3,393 | 19,393 |
| 6 | 10,000 | 7,200 | 4,362 | 21,562 |
| 7 | 10,000 | 8,400 | 5,437 | 23,837 |
| 8 | 10,000 | 9,600 | 6,623 | 26,223 |
| 9 | 10,000 | 10,800 | 7,925 | 28,725 |
| 10 | 10,000 | 12,000 | 9,382 | 31,382 |
| 11 | 10,000 | 13,200 | 10,969 | 34,169 |
| 12 | 10,000 | 14,400 | 12,718 | 37,118 |
| 13 | 10,000 | 15,600 | 14,657 | 40,257 |
| 14 | 10,000 | 16,800 | 16,817 | 43,617 |
| 15 | 10,000 | 18,000 | 19,201 | 47,201 |
| 16 | 10,000 | 19,200 | 21,834 | 51,034 |
| 17 | 10,000 | 20,400 | 24,734 | 55,134 |
| 18 | 10,000 | 21,600 | 27,930 | 59,530 |
| 19 | 10,000 | 22,800 | 31,462 | 64,262 |
| 20 | 10,000 | 24,000 | 32,212 | 66,212 |
$10,000 invested at a fixed 5% yearly interest rate, compounded yearly, and with a monthly contribution of $100, will grow to $66,212.12 after 20 years. This means a total interest of $32,212.12 and a return on investment of 94%.
This information is for reference only. No warranty or representation is given by us as to its accuracy, completeness and/or fitness for a particular purpose.
Please keep in mind that these calculations are based on a fixed annual interest rate for illustrative purposes. In reality, investment returns are not always consistent and can fluctuate from year to year due to changes in market conditions, interest rates, inflation, and various economic factors. If you're investing rather than saving in fixed-rate accounts, it's essential to be aware that actual returns may differ from these examples.
Leverage compound interest for growth
Now that you understand the power of compound interest, how can you maximise its potential in your own financial journey? Here are some key strategies to ensure you get the most out of compounding:
1. Start Early: The sooner you start, the longer your money has to grow. Even small amounts invested early can grow significantly over time due to compounding.
2. Make Regular Contributions: Consistently adding to your investments boosts the compounding effect. Each new contribution generates its own interest, enhancing overall growth.
3. Reinvest Earnings: Reinvest any interest, dividends, or earnings to allow them to compound and further accelerate growth.
4. Automate Investments: Automating your contributions ensures regularity, keeping your money growing steadily without effort on your part.
5. Use Tax-Deferred Accounts: Invest in tax-deferred accounts like SRS, so your earnings compound without the drag of taxes until withdrawal.
Top investment options to leverage compound interest
Compound interest is often hailed as the "eighth wonder of the world" for its ability to grow wealth over time significantly. Whether you’re new to investing or a seasoned investor, understanding where to invest for compound interest is crucial to building long-term financial success. But how do you choose the right vehicle to make the most of compounding?
The principle behind compound interest is simple: you earn interest on your initial investment, and then you earn interest on both the initial investment and the accumulated interest. This creates a snowball effect where your wealth grows exponentially, especially if you invest consistently over a longer period. However, not all investment options allow you to leverage this power equally. Here are some of the top choices:
1. Mutual Funds and ETFs
Mutual funds and exchange-traded funds (ETFs) are popular options for compounding, particularly because they provide diversification across various asset classes. Both offer the potential for regular dividends, which can be reinvested to accelerate compounding.
2. Money Market Funds (MMFs)
MMFs are a safer option for conservative investors who want to earn interest on their cash holdings with relatively low risk. Though the returns might not be as high as stocks or ETFs, the steady accrual of interest makes MMFs an attractive choice for compounding. Additionally, many MMFs allow you to reinvest your earnings, further enhancing the compounding effect.
3. Fixed Deposits
Fixed deposits provide a safe, low-risk way to grow your wealth. While returns may be lower than riskier investments, fixed deposits offer guaranteed interest, making them a popular choice for those seeking stable, predictable income.
4. Robo-Advisors
Robo-advisors, such as StashAway, take the guesswork out of investing by offering intelligent, globally diversified portfolios that are managed for optimal performance. By keeping your risk level constant while targeting long-term growth, robo-advisors help you leverage compound interest without needing active management.
5. Dividend Stocks
Investing in dividend-paying stocks is a great way to harness the power of compound interest. By reinvesting the dividends, you can increase your shareholdings and boost your potential for long-term capital appreciation. This approach is especially beneficial for investors looking to grow their wealth steadily through consistent income and compounding returns.
The StashAway advantage for compound interest
While these options are great for leveraging compound interest, StashAway provides a comprehensive suite of products tailored to different investment goals:
- General Investing: Diversifies across global assets to optimise long-term growth while keeping your risk constant.
- Simple™ Cash: Provides low-risk cash management strategies with projected returns in the 3% to 3.8% p.a. range, making it ideal for compounding with minimal risk.
- Income Investing: Focuses on generating passive income with a payout estimate of 4.5% p.a., offering steady, predictable returns or the option to reinvest to leverage compounding.
With these intelligent investment solutions, StashAway allows you to benefit from compound interest while easily navigating market fluctuations. No matter your risk appetite or financial goal, StashAway’s suite of products provides a clear path to growing your wealth through the power of compounding.
Ready to take your financial future to the next level? Explore StashAway’s Products and see how compound interest can help you build long-term wealth today.
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