How compound interest works
Compound interest is interest earning interest. Each period, your balance grows, and the next period earns a return on that larger balance. Add regular contributions and the effect snowballs, which is why starting early matters so much.
FV = P(1+i)ⁿ + PMT · [ (1+i)ⁿ − 1 ] / i
P = starting amount · PMT = monthly contribution · i = monthly rate (annual ÷ 12) · n = months
This calculator compounds monthly and assumes contributions are made at the end of each month.
Frequently asked questions
Why does starting early matter so much?
Because the longest dollars compound the most. The same monthly contribution started ten years earlier can end up worth dramatically more, since each early dollar has more years to grow.
What return rate should I use?
It depends on where the money sits. Savings accounts are typically low single digits; a broad stock index has historically averaged roughly 7% after inflation over long periods, though returns vary and are never guaranteed. Try a conservative number to be safe.
Does it account for inflation or taxes?
No. This shows nominal growth. For "today's dollars," use an inflation-adjusted (real) return. Taxes depend on the account type, such as a tax-advantaged retirement account.
Estimates only, not financial advice. Investment returns are not guaranteed.