Compound Interest Calculator – Savings Account Interest Calculator
What is compound interest?
When your money earns interest and that interest earns interest is a simple definition of compound interest.
“Compound interest is the eighth wonder of the world,” Einstein reportedly said.
When broken down, it’s easy to see why many refer to compound interest as magical. Thanks to the magic of compound interest you can accelerate the growth of any size deposit, for example:
- $1,000 in a savings account that earns 5% in annual interest.
- After 1 year your money would earn $50 and your new balance would be $1,050.
- After 2 years, you would earn 5% on the larger balance of $1,050, which is $52.50
- Your new balance would be $1,102.50.
Compound interest is more powerful when you start early
The power of compounding interest can be further demonstrated when you allow the deposit to grow for longer periods of time. Even if you never make an additional deposit, your money will grow exponentially.
Someone who saves $1,000 per year at age 25 will wind up with more than twice as much money by age 65 than someone who waits until 35 to save $1,000.
- $1,000 in a savings account at age 25, that earns 5% in annual interest.
- Continue to earn a 5% annual interest rate the whole time.
- Never ad another dime to that account.
- At age 55, your new balance would be $4,321.94.