How compound interest works
With compound interest, you earn interest on your original money and on the interest it has already earned. Each year your balance grows a little faster than the year before. Over long periods, the interest can end up larger than everything you contributed.
This calculator adds your monthly contribution at the end of each month and applies your chosen compounding frequency, converted to an equivalent monthly rate.
The formula
P is your initial deposit, r the annual rate, n the compounding periods per year and t the years. The second part adds monthly contributions (PMT), where i is the equivalent monthly rate and m the number of months.
Example calculation
You start with $10,000 and add $500 a month for 20 years at 7%, compounded monthly.
- Total contributed
- $130,000.00
- Interest earned
- $170,850.72
- Final balance
- $300,850.72
More than half the final balance is interest. That's the power of starting early.
Tips for faster growth
- Start now. Ten extra years matters more than a slightly higher return.
- Automate contributions. A fixed transfer on payday makes saving effortless.
- Watch fees. A 1% annual fee can consume a large share of your growth over decades.
- Use tax-advantaged accounts. A 401(k) or IRA lets more of your interest keep compounding.
Frequently asked questions
What's the Rule of 72?
Divide 72 by your interest rate to estimate how many years it takes to double your money. At 7%, money doubles in about 10 years.
Does this account for inflation?
No. To see results in today's dollars, subtract expected inflation (around 2% to 3%) from your interest rate.
What is the 4% rule?
It's a guideline suggesting you can withdraw about 4% of your savings each year in retirement with a low risk of running out. It's a starting point, not a guarantee.