Compound interest
Growth with monthly deposits and compounding.
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Future value
$1,082,240.71
After 20 years
- You put in
- $490,000.00
- Interest earned
- $592,240.71
- Interest share of total
- 54.72%
How it grows
How it works
The tool that makes long-term saving click. Add a monthly deposit and the split between your money and the interest becomes clear.
Example: 10,000 plus 2,000 a month at 7% for 20 years grows to roughly 1,080,000 — over half of it interest.
What compounding really does over time, how contributions change the shape of the curve, and why inflation and fees deserve a seat in the model.
Why compounding looks slow and then does not
Compound interest pays you on your interest. In year one the effect is invisible: 10,000 at 6% earns 600, the same as simple interest would. The difference only appears once that 600 starts earning too. By year ten the balance is around 17,908 rather than 16,000; by year thirty it is around 57,435 rather than 28,000. Nothing changed about the rate — only the number of times the growth was allowed to fold back in.
That is why time in the market matters more than almost any other variable. A ten-year head start is worth more than a meaningfully higher return achieved later, because early growth is the growth that has the longest to compound.
Contributions change the shape entirely
A lump sum grows as a smooth curve. Add a regular monthly contribution and you get two effects stacked: the original sum compounding, plus each new contribution starting its own smaller curve. Early in the plan, contributions dominate the balance. At some point — often between years twelve and twenty at typical rates — growth overtakes contributions, and the account starts adding more each year from returns than from your payments. That crossover is the moment saving turns into investing.
| Year | Total paid in | Approximate balance | Growth share |
|---|---|---|---|
| 5 | 25,000 | ≈ 31,900 | ≈ 22% |
| 10 | 40,000 | ≈ 61,000 | ≈ 34% |
| 20 | 70,000 | ≈ 169,000 | ≈ 59% |
| 30 | 100,000 | ≈ 379,000 | ≈ 74% |
Compounding frequency, and the Rule of 72
How often interest is applied matters, but less than people expect. At 6%, annual compounding gives an effective 6.00%; monthly gives 6.17%; daily gives 6.18%. Beyond monthly the gains are trivial. The rate itself, the contribution and the number of years are the levers that count.
For quick mental maths, divide 72 by the annual rate to get the rough doubling time. At 6%, money doubles in about twelve years; at 9%, about eight. It is accurate enough for a conversation and takes no calculator at all.
The two things that quietly reduce the result
- Inflation. A balance that grows 7% a year while prices rise 3% has real growth of roughly 4%. If you are planning for future spending, model the real rate rather than the headline one.
- Fees. An annual charge of 1% does not cost you 1% — it costs you 1% compounded for the whole term, which over thirty years can remove a fifth or more of the final balance.
- Tax on returns, where the account is not sheltered.
- Sequence of returns. Real markets do not deliver an identical percentage each year, and if poor years land while you are drawing money out, the outcome is worse than an average-based model suggests.
Questions people ask
How often should interest compound?
Monthly is a fair default for savings accounts and funds. The difference between monthly and daily compounding is small.
Does this account for tax or fees?
No. Subtract your platform fee from the rate for a more honest projection — a 1% fee on a 7% return costs a surprising amount over 20 years.
Is a 7% return realistic?
It is close to the long-run average of broad stock markets before inflation, but individual years vary wildly.
What return rate should I assume?
There is no correct answer, only a defensible one. Many people model a diversified equity portfolio somewhere in the 5–8% nominal range and then run a pessimistic case a few points lower to see whether the plan still stands up.
Is it better to invest a lump sum or spread it out?
Mathematically, investing sooner wins more often, because markets rise more often than they fall. Spreading it out reduces the risk of buying everything immediately before a drop — that is a comfort decision as much as a numbers one.
How do I model inflation here?
Use a real rate of return: subtract your inflation assumption from your nominal return and enter the result. The balance shown is then in today's money.
Does the compounding interval really matter?
Only marginally. Moving from annual to monthly compounding at 6% adds about 0.17 percentage points of effective return. Going from monthly to daily adds almost nothing.
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