Compound Interest Calculator

Why compounding is not intuitive

People reliably underestimate compound growth because they reason linearly. Money at 7 percent does not grow by 70 percent over ten years; it roughly doubles, because each year's return earns returns of its own. The gap between the linear guess and the real figure widens with time, which is why long horizons matter far more than the rate.

The rule of 72

Divide 72 by the annual percentage return to get the approximate years to double. At 6 percent, about twelve years; at 9 percent, about eight. It is accurate enough for mental arithmetic in the 4 to 12 percent range and is the fastest way to sanity-check a projection.

Contributions usually matter more than rate

Over short and medium horizons, what you add dominates what you earn. Someone saving 500 a month for ten years contributes 60,000; at 7 percent the growth adds roughly 26,000. Chasing an extra percentage point is far less effective than increasing the monthly amount, and far riskier. Rate only overtakes contributions on horizons beyond roughly twenty years.

Time in the market beats timing

Because early contributions compound for longest, money invested in year one is worth several times money invested in year twenty. Starting ten years earlier at a lower amount frequently beats starting later at a higher one. This is the single most consequential fact in the whole calculation.

Adjust for inflation or the number misleads

A projection of 500,000 in thirty years sounds substantial and buys roughly what 210,000 buys today at 3 percent inflation. Either project in real terms, using a return net of inflation, or mentally discount the result. Presenting a nominal figure as though it were purchasing power is the most common way these projections mislead.

What the model assumes

A constant rate, which no real investment delivers. Markets move in sequences, and the order of returns matters when you are contributing or withdrawing. Treat the output as a central estimate, model a lower rate alongside it, and revisit against what actually happened rather than what was projected.