Interest compounds monthly; contributions are added at the end of each month.
Growth by year
| Year | Contributed so far | Interest so far | Balance |
|---|
Why compounding matters
Compound interest means you earn interest on your interest. Each period's growth is calculated on the entire balance — your original deposit, your contributions, and all the interest earned so far. That last part is the engine. Simple interest pays a flat amount on the original sum each year; compound interest keeps rolling the gains back in, so the balance grows faster and faster. The effect is modest at first and startling over decades, which is why starting early beats saving more later.
The formula
For a lump sum with no contributions, the future value is:
FV = P × (1 + r)ⁿ
where P is the starting amount, r is the interest rate per period, and n is the number of periods. When you add a regular monthly contribution, each deposit compounds for however long it stays invested, so the total is the growth of the starting sum plus the growth of every contribution. The calculator above handles this month by month and separates what you put in from what the interest added.
Worked example
Start with $10,000, add $200 every month, and assume a 7% annual return for 20 years. Over that time you personally contribute $10,000 + ($200 × 240 months) = $58,000. But the balance grows to roughly $137,000 — meaning about $79,000 came from compounding alone, more than you contributed yourself. Stretch the same plan to 30 years and the balance passes $300,000: the extra decade more than doubles the result, because the largest balances compound in the final years.
The rule of 72
A handy shortcut: divide 72 by your annual return to estimate how many years it takes money to double. At 6% a year, money doubles in about 72 ÷ 6 = 12 years; at 9%, in about 8 years. It's an approximation, but a remarkably good one for typical rates, and it makes the power of a slightly higher return obvious.
Frequently asked questions
How often does interest compound?
It depends on the account. Savings accounts often compound daily or monthly; bonds may compound semi-annually. More frequent compounding helps a little, but the interest rate and the length of time matter far more. This calculator compounds monthly.
Does this account for inflation or taxes?
No — it shows nominal growth. Real spending power will be lower once inflation is considered, and interest earned outside tax-sheltered accounts may be taxable. As a rough guide, subtract your expected inflation rate from the return to see growth in today's money.
Are investment returns really steady like this?
No. Real markets rise and fall year to year, so a fixed rate is a smoothed illustration, not a guarantee. Use a conservative rate for planning, and remember that past performance doesn't predict the future. This tool is for illustration only and is not financial advice.
Related: the Loan Calculator shows compounding working against you as a borrower, and the Percentage Calculator helps with the rate maths.