What is compound interest?
Compound interest is the interest you earn not only on your original money, but also on the interest you have already earned. Each period your balance grows from a larger base, so the gains get bigger and bigger. This is the engine behind almost every long-term investing success story, and it is why a modest amount invested consistently can become a substantial sum over decades.
The calculator above shows exactly this. Enter your starting amount, an optional monthly contribution, an expected annual return and a time horizon, and it projects how your money develops, year by year, in both nominal and inflation-adjusted terms.
Compound interest vs simple interest
Simple interest is paid only on the original principal. Compound interest is paid on the principal and on accumulated interest. Over a single year the difference is small; over decades it is enormous.
| Simple interest | Compound interest | |
|---|---|---|
| Interest earned on | Principal only | Principal + accumulated interest |
| Growth shape | Straight line | Accelerating curve |
| 10,000 at 7% for 30 years | 31,000 | ~76,000 |
That gap — more than double — is created entirely by interest earning its own interest.
A worked example
Suppose you invest 10,000 and add 200 every month at an average annual return of 7% for 25 years:
- Total you contribute out of pocket: 10,000 + (200 × 12 × 25) = 70,000
- Projected final balance: well over 160,000
More than half of the final amount is growth you never deposited. The longer the horizon, the more this ratio tilts toward compounding rather than your own contributions.
How to use this calculator
- Initial amount — the money you start with today.
- Monthly contribution — how much you add every month. Even small, consistent amounts matter enormously.
- Annual interest rate — your expected average yearly return.
- Years — how long you stay invested.
- Inflation — adjust the result to see your real, future purchasing power, not just a bigger nominal number.
The results update instantly, so experiment: increase the monthly contribution, or extend the horizon by five years, and watch how the final balance reacts.
What makes your savings grow faster
Four things decide how big your balance gets, and the calculator lets you test each one without doing any maths:
- Your starting amount — the bigger your initial capital, the more there is to compound from day one.
- Your monthly contributions — adding money every month is often the most powerful lever of all, especially over long periods.
- Your rate of return — even one or two extra percentage points compound into a large difference over the years.
- Time invested — the longer your money stays invested, the more dramatic the growth, because the gains themselves start earning returns.
Enter your numbers and the chart shows exactly how each change plays out, year by year.
How compounding frequency changes the result
The more often interest compounds — yearly, monthly, daily — the slightly higher the effective return, because interest starts earning interest sooner. The jump from annual to monthly compounding is meaningful; from monthly to daily it is marginal. What matters far more than frequency is the rate and, above all, time.
Why time beats amount
The single most powerful lever in compounding is time. Money invested earlier has more periods to compound, so starting five years sooner often beats contributing a larger amount later. This is why beginning to invest as early as possible — even with small amounts — is so valuable, and why delaying is so costly.
Don't forget inflation
A bigger nominal number can be misleading if prices have also risen. Inflation quietly erodes purchasing power, so a balance that looks large in 30 years may buy less than you expect. Use the inflation adjustment here, and see our inflation calculator to understand that erosion on its own. To turn this growth into a retirement plan with contributions, taxes and withdrawals, try the retirement calculator.