How this works
Compound interest is interest paid on interest already earned, so your balance grows faster every year. Add regular monthly contributions and the effect snowballs — small, steady deposits over decades end up dwarfing the original principal. Enter your starting amount, your expected annual return, your time horizon, and an optional monthly contribution. The result shows the future balance, total interest, and how much of it came from your contributions versus growth.
The formula
FV = future value (final balance). P = starting principal. r = annual rate as a decimal (7% → 0.07). n = compounding periods per year (1 annual, 12 monthly, 365 daily). t = time in years. C = contribution per period (monthly contributions are converted to match the chosen frequency). When contributions are zero, only the first term applies.
Example calculation
- You start with $10,000, contribute $200/month, and earn 7% per year compounded monthly for 10 years.
- After 10 years your $10k starting amount alone grows to about $20,096 — already roughly doubled.
- Add the monthly contributions and the final balance is roughly $54,800. Total contributions: $24,000. Interest: ~$20,800.
Frequently asked questions
Does compounding frequency really matter?
A bit, but less than you'd think. On $10k at 7% over 10 years, annual compounding gives ~$19,672, monthly gives ~$20,097, and daily gives ~$20,136. The jump from annual to monthly matters; from monthly to daily is barely noticeable. Rate and time are far more powerful than frequency.
What rate of return should I assume?
Historical long-run averages: ~10% nominal / ~7% real (after inflation) for a diversified global stock portfolio, ~3–5% nominal for bonds, ~4–5% for a balanced 60/40 portfolio. For a high-yield savings account, use the current APY (typically 4–5% in 2024). For long-horizon planning, 6–7% is a reasonable middle ground.
Is the result before or after inflation?
It's nominal — i.e. before inflation. To see the real (purchasing-power) value of your future balance, subtract expected inflation from the rate of return. If you expect 7% returns and 3% inflation, run the calculator at 4% to see the result in today's dollars.
Why does Einstein supposedly call compounding "the eighth wonder of the world"?
The quote is almost certainly apocryphal, but the underlying math is real. Linear growth — adding the same amount each year — feels intuitive. Exponential growth doesn't: doubling time at 7% is roughly 10 years (the Rule of 72: 72/rate ≈ doubling time). Over a 40-year career, money compounds 4 times, turning $10k into $160k with no contributions at all.