The compound interest formula
A is the final amount, P the principal, r the annual rate as a decimal, n the number of compounding periods per year, and t the years. When you also contribute monthly, each deposit starts compounding from the month it's made — the calculator handles that series for you.
Worked example
Start with $10,000, add $200/month, earn 7% compounded monthly for 20 years. The principal alone grows to about $40,300 — but with contributions the balance reaches roughly $144,000, of which only $58,000 is money you put in. The remaining ~$86,000 is compound growth.
Why time beats amount
Compounding is exponential, so the last years do the heavy lifting. In the example above, the balance grows more in the final 5 years than in the first 10 combined. This is why starting early — even with small contributions — consistently outperforms starting late with larger ones. A useful mental shortcut is the Rule of 72: money doubles roughly every 72 ÷ rate years (at 7%, about every 10.3 years).
Returns in real markets vary year to year and may be negative; this tool models a constant rate. Not investment advice.
Frequently asked questions
What's the difference between simple and compound interest?
Simple interest is paid only on the original principal: $10,000 at 7% simple earns a flat $700/year. Compound interest is paid on principal plus accumulated interest, so the same money earns $700 the first year, then $749, then $801, and accelerates from there.
How does compounding frequency affect the result?
More frequent compounding helps, but less than people expect. $10,000 at 7% for 20 years grows to $38,697 compounded annually, $40,387 monthly, and $40,547 daily. Rate and time matter far more than frequency.
What is the Rule of 72?
Divide 72 by your annual return to estimate how many years it takes money to double. At 6% that's ~12 years; at 9%, ~8 years. It's an approximation that works well for rates between 4% and 12%.
What rate should I assume for investments?
Historically, broad stock indexes have returned around 7–10% per year over long periods before inflation, while savings accounts and bonds return much less. Many planners model 6–7% for diversified portfolios to stay conservative. Past performance never guarantees future results.
Are the monthly contributions invested at the start or end of each month?
This calculator assumes end-of-month contributions, the standard convention. Beginning-of-month deposits would produce a slightly higher total because each deposit earns one extra month of growth.