Compound Interest Calculator
TL;DR
- ▸Compound interest means you earn returns on your returns — your money grows exponentially, not linearly.
- ▸Starting 10 years earlier can double your final portfolio value even with the same monthly contribution.
- ▸The three levers are: starting amount, monthly contribution, and time. Time is the most powerful.
- ▸Use this calculator to model different scenarios before choosing an investment strategy.
Albert Einstein reportedly called compound interest the eighth wonder of the world. Whether or not he actually said it, the sentiment is accurate: compounding is the mechanism that turns modest, consistent investing into significant wealth over time.
This calculator lets you model how your investments grow with compound interest. Adjust the starting capital, monthly contributions, expected annual return, and time horizon to compare different investment scenarios.
How Does Compound Interest Work?
In simple interest, you earn returns only on your original principal. In compound interest, you earn returns on both the principal and on all the interest you have already earned. Each period, your base grows — which means the absolute amount you earn each period also grows. Over long time horizons this creates an exponential curve that rewards patience far more than it rewards starting with a large lump sum.
What Return Rate Should You Use?
The global equity market (MSCI World) has returned approximately 7–8% annually after inflation over the past 50 years. A diversified portfolio of equities and bonds might average 5–6%. A conservative bond-heavy portfolio might average 3–4%. Avoid being optimistic: the difference between 6% and 8% over 30 years results in a 40% larger final portfolio. Use conservative estimates for planning and treat any outperformance as a bonus.
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Try DonkyCapital FreeWhy Does Starting Early Matter So Much?
Compounding rewards time exponentially. An investor who starts at 25 and stops at 35 (10 years of contributions) will often end up with more wealth at 65 than someone who starts at 35 and contributes every year until 65 (30 years of contributions) — because the early investments had 30 extra years to compound. This is the most counterintuitive and important insight in personal finance: start early, even with small amounts.
Frequently Asked Questions
What is the difference between annual and monthly compounding?
With annual compounding, interest is added once per year. With monthly compounding, it is added 12 times per year. Monthly compounding produces slightly higher returns because each month's interest starts earning returns sooner. Most investment funds compound daily or continuously in practice.
Does this calculator account for inflation?
By default it uses nominal returns. To model real (inflation-adjusted) returns, subtract the expected inflation rate from your annual return input. For example, if you expect 7% nominal and 2.5% inflation, enter 4.5%.
What is the Rule of 72?
The Rule of 72 is a quick mental calculation: divide 72 by your annual return rate to estimate how many years it takes to double your money. At 6%, your money doubles in ~12 years. At 8%, in ~9 years.
How do taxes affect compound growth?
Taxes on dividends and capital gains reduce effective compound growth. Tax-advantaged accounts (PIR in Italy, PEA in France, ISA in the UK) let your investments compound tax-free until withdrawal, significantly boosting long-term results.
Can I use this for ETF investment planning?
Yes. Enter your ETF's expected annual return (typically 6–8% for global equity ETFs), your monthly investment amount, and your target horizon to see projected portfolio values.
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