The first term compounds your starting principal P; the second is the future value of regular contributions PMT. r is the annual rate, n the number of compounds per year, and t the years. Compounding more frequently and starting earlier both raise the result — time is the biggest lever.
How compound interest works
Compound interest is the engine behind long-term saving and investing: you earn interest on your principal and on the interest already earned. The longer the time horizon, the more dramatic the effect — which is why starting early matters more than starting big.
This calculator compounds monthly and lets you add a recurring monthly contribution. Drag any slider to see how rate, time, and contributions each reshape your future value and the split between what you put in and what the interest earned for you.
Worked example
Start with $5,000, add $200/month at 7% annual return compounded monthly for 20 years: the principal grows to about $20,200, the contributions total $48,000 — and the final balance is roughly $123,000. More than half the ending value is growth, not deposits. Stretch to 30 years and the balance passes $280,000, with growth outweighing contributions almost 3-to-1.
The rule of 72
A quick mental check: divide 72 by the annual return to estimate the years to double your money. At 7%, money doubles roughly every 10 years; at 9%, every 8. It's why an early start beats a big start — each extra decade is another doubling.
Compounding frequency and real-world returns
More frequent compounding helps, but modestly: $10,000 at 6% for 10 years is $17,908 compounded annually vs $18,194 monthly. Time and rate dominate. Remember real investment returns vary year to year and inflation (~2–3%) erodes purchasing power — for long-term planning, try a conservative rate and see the retirement calculator; for non-compounding loans, the simple interest calculator.
For information only; not financial advice. Real returns vary and are not guaranteed.
Simple vs compound interest
Simple interest pays only on the principal, forever: $10,000 at 6% simple earns a flat $600 every year — $28,000 total after 30 years. Compound interest pays on the growing balance, and the gap is quiet at first, then absurd: the same money compounding annually reaches about $57,400 — more than double, with the difference almost entirely from the later decades. That back-loading is the whole argument for starting early: the last ten years of a forty-year horizon usually create more growth than the first thirty. The simple interest calculator runs the flat version side by side.