How compound growth works
Each month, interest is added to your balance and your contribution is deposited. The next month, interest is earned on that larger balance. The chart shows how, over time, interest makes up a growing share of the total.
What your savings can grow to
The calculator's starting example: $10,000 now and $500 a month for 20 years at 7% a year, compounded monthly, grows to $300,851. You put in $130,000; the other $170,851 is interest, more than you saved yourself.
Saving a set amount each month from nothing, at 7% a year:
| A month | 10 years | 20 years | 30 years |
|---|---|---|---|
| $100 | $17,308 | $52,093 | $121,997 |
| $250 | $43,271 | $130,232 | $304,993 |
| $500 | $86,542 | $260,463 | $609,986 |
| $1,000 | $173,085 | $520,927 | $1,219,971 |
Going from 20 to 30 years doesn't add half as much again: it more than doubles the total, because the last ten years earn interest on everything built up before them.
| Rate | Rule of 72 | Actual years to double |
|---|---|---|
| 3% | 24 | 23.4 |
| 4% | 18 | 17.7 |
| 6% | 12 | 11.9 |
| 8% | 9 | 9 |
| 10% | 7.2 | 7.3 |
The rule of 72 is a quick way to estimate how long money takes to double: divide 72 by the yearly rate. It’s close for the rates most savers and investors see.
Compound vs. simple interest
With simple interest, you earn interest only on the money you put in. With compound interest, you also earn interest on the interest. On $10,000 at 5% for 10 years:
| Interest | After 10 years | Interest earned |
|---|---|---|
| Simple | $15,000 | $5,000 |
| Compounded once a year | $16,289 | $6,289 |
The gap grows every year, which is why time matters more than anything else.
Getting the most from compounding
- Start early: time is the biggest driver of growth.
- Contribute regularly: small monthly amounts add up, and each one starts compounding right away.
- Use tax-advantaged accounts: in a 401(k), IRA or HSA, growth isn’t taxed each year, so more of it keeps compounding.
- Mind fees and taxes: they reduce your real rate of return, so the growth shown here is before fees and taxes. When you sell investments outside a retirement account, the capital gains tax calculator shows the tax on the gain.
- Think in today’s money: prices rise too. The inflation calculator shows what a future amount is worth today.
When compounding works against you
Debt compounds too. Unpaid interest on a credit card is added to the balance, and you’re then charged interest on it. Clearing high-interest debt is often the best “return” you can get: see the credit card payoff calculator.
For savings accounts and CDs, see what your balance earns in the savings interest calculator, and for investing, start with investing basics.