Compound Interest Calculator

What compounding actually does

Simple interest pays you on your original deposit. Compound interest pays you on your deposit and on the interest that deposit has already earned. Each period the base grows, so the next period earns more than the last.

Over short periods the difference is barely visible. Over decades it dominates everything else. Run the calculator at 7% for 30 years and look at the split between what you contributed and what the account earned — for most realistic inputs, the earnings are the larger number by a wide margin.

The part that surprises people: it is back-loaded

Compound growth is not a straight line. It is almost flat at the start and steep at the end, because the interest is proportional to a balance that keeps growing. Open the year-by-year table and compare the first year's interest against the last year's on any long projection — they are usually different by an order of magnitude.

This has one practical consequence, and it is the only real lesson here: years matter more than amounts. Starting five years earlier generally beats contributing more later, because the early money is the money that gets the most compounding periods.

What to be careful about

• The rate is an assumption, not a fact. A savings account rate is contractual. A stock market return is a long-run average that includes years of losses. A projection at 7% is not a promise of 7% every year.
• Inflation eats the headline number. $500,000 in thirty years does not buy what $500,000 buys today. Enter your return minus expected inflation to get an answer in today's money.
• Fees compound too. A 1% annual fee does not cost you 1%. Over thirty years it removes a substantial share of the final balance, because it is deducted from a base that would otherwise have kept growing.
• Taxes apply outside sheltered accounts. In a taxable brokerage account, dividends and realised gains are taxed along the way, which reduces the amount left to compound.