Project the growth of an investment or savings account with regular contributions.
Compound interest means you earn interest on your interest. In the first year, you earn a return on your deposit. In the second year, you earn a return on both the deposit and the first year's interest. Each cycle, the base that generates income gets larger, which is why growth accelerates over long periods.
Over 20 years at a 7% annual return, a $10,000 deposit grows to roughly $38,700 without any contributions. Add $500 per month and the final balance approaches $294,000, of which more than $164,000 is interest. Time in the market matters more than timing.
Where P is the principal, r the annual rate as a decimal, n the number of compounding periods per year, t the time in years, and PMT the contribution made each period.
Daily compounding sounds dramatically better than annual, but the difference is small. At 7% over one year, $10,000 grows to $10,700 with annual compounding and $10,725 with daily compounding. Frequency matters slightly more at higher rates and longer horizons, but the rate itself and your contributions dominate the outcome.
Historically, a globally diversified stock portfolio returned roughly 7% per year after inflation over multi-decade periods. Savings accounts currently yield far less. Run several scenarios rather than trusting one number.
No. This calculator shows gross growth. Investment fees of 1% per year can consume roughly a quarter of your lifetime returns, so check your expense ratios.
The results are in nominal dollars. Use the inflation calculator to see what the final balance is worth in today's purchasing power.