How compound interest works
With compound interest, the interest you earn is added to your balance and then earns interest itself. The longer the time, the more this snowball effect dominates: a large share of the final balance comes from growth, not from what you contributed.
Monthly rate i = (1 + annual rate ÷ k)k ÷ 12 − 1, where k is the number of compounding periods per year.
Rule of 72: years to double ≈ 72 ÷ annual rate (in %).
Contributions are assumed to be made at the end of each month. The table lays out, year by year, what you put in and what growth added.
How to read the results
- Final balance. What your savings would be worth at the end, if the rate stayed constant.
- Interest earned. The final balance minus everything you contributed.
- Inflation-adjusted value. The purchasing power of the final balance in today’s dollars, assuming a constant yearly inflation rate. It is the more honest number for 20- or 30-year goals.
Limits of a constant-rate projection
- Real investments do not earn a steady rate. Returns vary year to year, and stocks can lose value.
- Fees, such as fund expenses and advisory fees, reduce your net return. Subtract them from the rate you enter.
- Taxes are not included and depend on the type of account.
This tool illustrates a mathematical mechanism; it does not predict returns. To weigh investing against paying down a mortgage, read Pay off your mortgage early or invest.
Frequently asked questions
What is compound interest?
It is interest calculated on both your original balance and on the interest already added. Over long periods this snowball effect becomes the main driver of growth. Compounding frequency matters far less than the rate and the number of years.
What is the rule of 72?
A shortcut for estimating how long it takes to double your money: divide 72 by the annual rate in percent. At 6%, it takes roughly 12 years. It is an approximation, handy for a quick sense of scale.
What return should I enter?
No return is guaranteed for risky investments. For a savings account, use the current rate. For stocks, choose a cautious assumption and subtract fees. Try several rates to see how sensitive the result is.
Why show an inflation-adjusted value?
Because inflation erodes purchasing power. A million dollars in 30 years will not buy what it buys today. The adjusted value restates the result in today’s dollars for a fairer comparison.
How much do monthly contributions matter?
A lot. Over long periods, regular contributions usually make up most of what you put away, and each early contribution has longer to grow. Change the monthly amount to see the effect.
This tool is for general information and illustration. It is not personalized advice. Confirm the figures with a qualified professional. See our editorial standards.
