Compound Interest Calculator
Calculate how your investment grows over time with compound interest at any frequency.
Formula
A = final amount, P = principal, r = annual rate (decimal), n = compounds per year, t = time in years.
The interest earned is the difference between the final amount and original principal.
The actual annual return accounting for compounding. EAR ≥ nominal rate when n > 1.
Examples
- P = $10,000, r = 0.12, n = 12, t = 5
- A = $10,000 × (1 + 0.12/12)^(12×5)
- A = $10,000 × (1.01)^60
- A = $10,000 × 1.8167 = $18,166.97
- P = $50,000, r = 0.08, n = 365, t = 2
- A = $50,000 × (1 + 0.08/365)^(365×2)
- A = $50,000 × (1.000219)^730
- A = $50,000 × 1.17351 = $58,675.64
- P = $1,000, r = 1.00, n = 365, t = 1
- A = $1,000 × (1 + 1.00/365)^365
- A = $1,000 × (1.002740)^365
- A = $1,000 × 2.7146 = $2,714.57
Key Concepts
The Power of Compounding
Compound interest earns interest on interest. A $10,000 investment at 10% simple interest earns $1,000/year forever. With annual compounding, year 1 earns $1,000, year 2 earns $1,100, year 3 earns $1,210 — accelerating growth over time.
Rule of 72
Divide 72 by your annual return to estimate how many years it takes to double your money. At 8% APY, money doubles in ~9 years. At 24% APY (common in DeFi), money doubles in ~3 years. At 72% APY, it doubles in just 1 year.
Compounding in DeFi
DeFi protocols compound at different frequencies. Aave interest accrues per block (~12 seconds). Yield farms may compound daily via auto-compounders. The more frequent the compounding, the higher the effective yield — but gas fees can erode gains on small positions.
Nominal vs Effective Rate
The nominal rate is the advertised rate (e.g., 12% APR). The effective annual rate (EAR) accounts for compounding — 12% APR compounded monthly is actually 12.68% EAR. Always compare EARs when evaluating different investments.
Gas Cost vs Compound Benefit
On Ethereum mainnet, manually compounding a $1,000 position when gas costs $5 per transaction means each compound costs 0.5% of your position. If daily compounding adds 0.02% in value, you'd lose money compounding daily. Auto-compounding vaults batch claims to reduce per-user costs.
Time Is the Critical Variable
$10,000 at 10% for 10 years = $25,937. For 20 years = $67,275. For 30 years = $174,494. The final decade produces more than the first two combined. In crypto, time horizons are compressed — but the principle remains: compounding rewards patience.
How Compound Interest Works in Crypto
Compound interest is the foundation of wealth building in DeFi. When you deposit assets into a lending protocol, yield farm, or staking pool, you earn returns on your principal. If those returns are reinvested (compounded), they begin generating returns themselves — creating exponential growth over time.
The compound interest formula A = P(1 + r/n)^(nt) captures this precisely. The key insight is that both the rate (r) and compounding frequency (n) matter. A 50% APR compounded daily produces a much higher effective yield than 50% APR compounded annually — 64.87% vs 50.00% respectively.
In practice, DeFi yields are variable and depend on supply/demand dynamics, token prices, and protocol incentives. This calculator assumes a constant rate, which is useful for estimation but should be treated as a projection, not a guarantee.
Frequently Asked Questions
What's the difference between APR and compound interest?
APR is the simple annual rate without compounding. Compound interest applies that rate repeatedly over sub-periods (daily, monthly, etc.), with each period's interest added to the principal. The result is a higher effective return than the stated APR.
How often should I compound in DeFi?
It depends on gas costs and position size. For Ethereum mainnet, compound when the interest earned since last compound exceeds gas cost by a meaningful margin (e.g., 5-10x). On L2s or Solana where gas is cheap, daily or even hourly compounding can be worthwhile.
Does this calculator account for variable rates?
No. This calculator assumes a fixed annual rate for the entire period. DeFi rates fluctuate constantly based on utilization, TVL, and token emissions. Use this as an estimate with the average rate you expect over your investment horizon.
Can compound interest work against me?
Yes — if you're borrowing. Compound interest on debt grows exponentially too. A DeFi loan at 15% APR compounded daily effectively charges 16.18% per year. If you can't repay, the debt compounds faster than many investments grow.