What is the difference between compound and simple interest?

With simple interest, you earn interest only on your original principal. For example, $10,000 at 7% simple interest earns $700 every year, so after 10 years you have $17,000. With compound interest, each period's interest is added to the balance, so you earn interest on your interest. That same $10,000 at 7% compounded monthly grows to $20,096.61 over 10 years — the extra $3,096.61 is the effect of compounding.

How often should interest compound?

More frequent compounding grows your money faster, but the difference is small compared to the interest rate itself and the time your money stays invested. On $10,000 at 7% for 10 years, daily compounding gives $20,136.18 while annual compounding gives $19,671.51 — a difference of $464.67. Monthly compounding ($20,096.61) is the most common schedule for savings accounts and is a sensible default.

Is a 7% annual return realistic?

Seven percent is roughly the long-run historical average annual return of the US stock market, which is why it is commonly used for illustration — but it is not a guarantee of future results. Market returns vary year to year and can be negative in any given year. Savings accounts typically pay far less. Treat any rate you enter as an assumption for illustration, not a promise.

Can I lose money while it compounds?

Yes. Compounding multiplies whatever return you get, including negative ones. If an investment falls 10% in a year, a $10,000 balance becomes $9,000, and the next year's growth starts from $9,000. FDIC-insured savings accounts cannot lose principal, but market investments can. This calculator only shows the growth scenario, not the risk.

Do monthly contributions matter more than the interest rate?

Often, yes — especially early on. Compare the calculator's defaults: $10,000 at 7% for 10 years with no contributions grows to $20,096.61. Add $200 per month and the future value jumps to $54,713.58. The $24,000 in extra contributions does most of the heavy lifting; the interest earned on top is $20,713.58. Over decades, compounding takes a larger share, which is why starting early matters so much.

Compound Interest Calculator

See how your money grows when interest compounds — on your starting balance and on every monthly contribution. Includes an inflation-adjusted view so you know what the final number is really worth.

Initial investment ($)

Monthly contribution ($)

Annual interest rate (%)

Years to grow

Compounding frequency

Rate mode

Advanced options

Annual inflation rate (%)

Used to show the final balance in today's dollars.

Why compounding beats saving alone

With simple interest you earn only on what you put in. With compound interest you earn on your contributions and on all the interest already added — the snowball effect. Over decades, the interest-on-interest portion often dwarfs the original deposits. That's why starting ten years earlier usually beats saving twice as much later.

Two things supercharge compounding: time and consistency. Monthly contributions matter enormously because each one gets its own compounding runway. The comparison below shows exactly how much of your final balance came from contributions versus growth.

Nominal vs real returns

A 7% return with 3% inflation is really about a 4% gain in purchasing power. The inflation-adjusted figure above discounts the final balance back to today's dollars so you're comparing apples to apples. Investment projections that ignore inflation look exciting but overstate what the money will actually buy.

Frequently Asked Questions

What is the Rule of 72?

Divide 72 by your annual rate to estimate the years needed to double your money. At 7%, about 10.3 years; at 4%, about 18 years. It's a shortcut, not a substitute for the full formula.

Does compounding frequency matter much?

A little, not a lot. Monthly vs annual compounding on the same rate adds a small boost (the effective annual rate rises slightly). The rate itself and the number of years matter far more.

How does inflation change the result?

We divide the final balance by (1 + inflation)^years to express it in today's dollars. At 3% inflation over 20 years, money loses about 45% of its purchasing power — a $40,000 balance buys what ~$22,000 buys today.

Are monthly contributions really that powerful?

Yes. Each contribution compounds for the remaining years, so early contributions do the heaviest lifting. The "with vs without contributions" comparison above quantifies it for your exact inputs.

Is this before or after taxes and fees?

Before. Taxes, account fees and fund expenses all reduce the effective rate. For a rough adjustment, subtract your expected fee drag from the annual rate before calculating.

Compound Interest Calculator

Why compounding beats saving alone

Nominal vs real returns

Frequently Asked Questions

Embed this calculator