How this is calculated
Each month: balance = balance × (1 + annual rate / 12) + monthly contribution. Repeated for 12 × years months.
Compound interest means you earn interest not only on the money you deposit, but also on the interest it has already earned. Early on the effect looks unremarkable — a few dollars on top of your deposits. But growth accelerates every year, because each year's interest is calculated on a bigger and bigger balance. That is why the chart above curves upward instead of climbing in a straight line.
This calculator compounds monthly, which is how most savings accounts and index-fund models work in practice. Each month your balance grows by one-twelfth of the annual rate, then your monthly contribution is added. Over 20 or 30 years, the difference between contributing early and contributing late is dramatic: money invested in year one compounds for the entire period, while money added in the final year barely compounds at all.
A rule of thumb worth knowing is the Rule of 72: divide 72 by your annual rate to estimate how many years it takes money to double. At 7%, your money doubles roughly every 10 years — so a single $10,000 investment can double three times into ~$80,000 over 30 years without any extra contributions.
Frequently asked questions
What interest rate should I assume?
For a savings account, use the rate your bank actually pays. For long-term stock market investments, the S&P 500 has historically averaged around 10% per year before inflation — many planners use 6-7% to account for inflation and fees. This tool makes no prediction; it shows the math for whatever rate you choose.
Does compounding frequency matter?
Less than most people expect. $10,000 at 7% for 20 years grows to about $38,700 with annual compounding and about $40,400 with monthly compounding. The rate and the time horizon matter far more than the frequency.
Are taxes and inflation included?
No. Results are pre-tax nominal values. If you want an inflation-adjusted view, use a lower 'real' rate — for example 7% nominal growth with 3% inflation is roughly a 4% real rate.
Why does starting early matter so much?
Because the biggest gains come in the final years, when the balance is largest. Starting ten years earlier doesn't add ten years of average growth — it adds the ten *best* years at the end of the curve.