How compound interest works
With compound interest you earn interest on your interest. A single deposit grows as FV = P × (1 + r/k)k·t, where r is the annual rate, k the number of compounding periods per year and t the number of years. Regular contributions are added each month and compound from the moment they are invested.
Example
$10,000 invested at 7% a year, compounded monthly, grows to $40,387 in 20 years. Adding $200 every month raises the final amount to $144,573, of which $58,000 are your contributions and $86,573 is interest.
| Years | Contributions | Interest | Balance |
|---|---|---|---|
| 5 | $22,000 | $6,495 | $28,495 |
| 10 | $34,000 | $20,714 | $54,714 |
| 20 | $58,000 | $86,573 | $144,573 |
| 30 | $82,000 | $243,159 | $325,159 |
The rule of 72
Divide 72 by the annual rate to estimate how many years it takes to double your money: at 6% about 12 years, at 9% about 8 years.
Real vs. nominal returns
Inflation reduces what your future balance can buy. Enter an inflation rate to see the result in today's money. Returns on investments such as stocks are not guaranteed and vary from year to year; this calculator assumes a constant rate and ignores taxes and fees.
Frequently asked questions
What is compound interest?
Interest calculated on both your initial deposit and the interest already earned, so growth accelerates over time.
Does compounding frequency matter?
A little: monthly or daily compounding produces slightly more than annual compounding at the same nominal rate.
Should contributions be at the start or end of the month?
Start-of-month contributions earn one extra month of interest each time. Choose the option that matches how you save.