How this calculator works
Compound interest means you earn growth not only on the money you put in, but also on the growth you already earned. Each month the calculator applies one-twelfth of your annual rate to the whole balance, then adds your monthly contribution. The formula for that is:
Balance = P × (1 + r/12)n + PMT × ((1 + r/12)n − 1) ÷ (r/12)
P is your starting amount, PMT the monthly contribution, r the annual return as a decimal and n the number of months. The chart splits every year’s balance into the money you put in and the growth on top of it.
An example
Start with $10,000 and add $300 a month at a 7% annual return. After 20 years you would have about $196,665, of which $82,000 is money you contributed and $114,665 is growth. Keep going for 30 years and the balance reaches about $447,156. The extra ten years add more than the first twenty did, because growth is working on a much larger balance. That is the reason starting early matters so much.
Making the result more realistic
- Use a conservative return. Returns are never guaranteed and markets go up and down. Try several scenarios (for example 4%, 6% and 8%) instead of trusting a single number.
- Look at the inflation-adjusted figure. A balance of $500,000 in 30 years buys much less than $500,000 today. The “worth in today’s money” value divides the result by the cumulative inflation you enter.
- Remember fees and taxes. A fund charging 1% a year takes a real bite out of long-term growth. Subtract expected fees from the return you type in.
- The rule of 72. Divide 72 by the annual return to estimate how many years it takes to double: at 6% about 12 years, at 9% about 8.
Frequently asked questions
What return should I enter?
It depends on where the money is. Cash and savings accounts usually earn less and swing less; stock-market investments have historically earned more over long periods but with large ups and downs. Pick a conservative number and test a few others.
Is this the same as simple interest?
No. Simple interest is paid only on the original amount. Compound interest is paid on the original amount plus previously earned interest, so growth accelerates over time.
Does it include taxes, fees or inflation?
Taxes and fees are not modeled: reduce your return input to account for them. Inflation is shown separately as the value in today’s money.
When are contributions added?
At the end of each month, after that month’s growth. Contributing at the start of the month would give a slightly higher result.