How Compound Interest Works
Compound interest is interest calculated on both your initial investment and the interest it has already earned. Over time, this creates exponential growth — the earlier you start and the longer your money compounds, the more dramatic the effect. This calculator shows how your savings or investments could grow with regular contributions.
The Compound Interest Formula
A = P(1 + r/n)^(nt) + regular contributions compounded over the same period
Where A = future value, P = principal, r = annual interest rate, n = compounding frequency per year, t = number of years
Why Starting Early Matters
Because compound interest grows exponentially, time is often more powerful than the amount you invest. Someone who starts investing $200/month at age 25 can end up with significantly more at retirement than someone who starts investing double that amount at age 40 — simply because their money has more years to compound.
Compounding Frequency Matters Too
More frequent compounding (daily vs. annually) leads to slightly higher returns, since interest is calculated and added to your balance more often. The difference is usually small but can add up over long periods.
Frequently Asked Questions
Is this calculator accurate for stock market investments?
This calculator assumes a constant annual return, which is useful for illustration. Real markets fluctuate year to year, so actual returns will vary — this gives you a reasonable long-term estimate, not a guarantee.
Should I include taxes in my calculation?
This calculator shows pre-tax growth. If your investment is in a taxable account, your actual take-home returns may be lower depending on your tax bracket and account type.
What's a realistic interest rate to use?
Historical long-term stock market averages are often cited around 7-10% annually before inflation, while savings accounts and bonds typically offer much lower rates. Use a rate that matches your actual investment type.