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Compound interest calculator: how your money grows over the years

By · Last updated:

Final capital $145,431.01
Paid in
$70,000.00
Growth
$75,431.01

The calculation includes no taxes and no costs. How gains are taxed depends on the country you live in.

050k100k StartYear 10Year 20 $145,431
The gray area is the money you paid in. The colored area above it is the growth.

All values are model calculations without guarantee. Rounding differences are possible.

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Example: $10,000 starting capital, $250 a month, 6% return

Years Final capitalOf which paid inOf which interest
10 years $58,526.84$40,000.00$18,526.84
20 years $145,431.01$70,000.00$75,431.01
30 years $301,063.15$100,000.00$201,063.15
40 years $579,776.62$130,000.00$449,776.62

What this calculator does

The calculator shows you what your starting capital and your monthly savings turn into over the years. You see the final capital, and you also see how much of it you paid in yourself and how much the interest contributed. This split is the interesting part. For a fixed target amount, the millionaire calculator shows you when you will reach it. If the target year is fixed as well, use the savings-to-a-million calculator instead.

How I calculate it

The calculation consists of one step that repeats every month.

Step 1: Convert the annual rate into a monthly rate. If you expect 6% a year, that is not simply 0.5% a month. Because of compounding, twelve months at 0.5% each give 6.17% a year, which is more than you entered. That is why I convert geometrically. 6% a year becomes 0.4868% a month. Twelve such months give exactly 6%.

This sounds like nitpicking, but over long periods it makes a difference of several thousand dollars. Many calculators online use the simple approximation and therefore show you a result that is slightly too rosy.

Step 2: Apply interest to the existing capital. In the first month that is $10,000, which grows by 0.4868%. That is $48.68 in interest. Your capital stands at $10,048.68.

Step 3: Add the monthly savings. At the end of the month, $250 is added. You are at $10,298.68.

Step 4: Repeat. In the second month, interest is earned on $10,298.68, no longer on the original $10,000. That is compound interest. Then another $250 is added.

After 20 years, that is 240 repetitions, you are at $145,431.01. Of that, you paid in $70,000, namely $10,000 starting capital plus 240 times $250. The remaining $75,431.01 is interest.

This is the point where the calculation gets interesting. After 20 years, more money comes from interest than from your own payments. After 30 years it is $301,063.15, of which $100,000 was paid in and $201,063.15 is interest. The interest share has more than doubled in ten years, although you did not save a single dollar more per month.

Why the last years bring the most

Many people stop saving because it hardly seems worth it in the first years. After five years, in this example you are at $30,753.70, of which $25,000 was paid in. Interest makes up $5,753.70, not even a fifth.

The reason is simple. Interest is earned on what is already there. In the first years there is little there. After twenty years, $145,431.01 is working for you, and 6% on that is $8,725.86 in the next year alone. That is almost three times what you pay in yourself that year.

This leads to the uncomfortable truth of this calculation. The most valuable factor is time, and you cannot buy more of it later. If you start ten years later, you have to roughly double your monthly savings to end up at the same point.

What is often overlooked

Tax is missing from every gross calculation. The $75,431.01 of interest from the example is a figure before taxes. How price gains and distributions are taxed depends on the country you live in, and so does the question of whether tax is due every year or only when you sell. Check the rules where you live, or ask a tax advisor.

Costs act like a negative return. A management fee of 0.5% a year sounds harmless. But it lowers the return from 6% to 5.5%, and over 30 years that costs $28,492.23. You can see how much costs matter in the ETF savings plan calculator.

The average return hides the order of returns. The calculator assumes the same interest rate every year. Reality fluctuates. In the accumulation phase this is less dramatic, because you buy more cheaply in bad years. In the withdrawal phase it is the other way round. There, early years with losses can shrink the capital permanently.

Inflation eats part of it. $145,431.01 in 20 years feels like a lot today. At 2% inflation, it corresponds to $97,870.90 in today’s purchasing power. If you want to calculate in today’s purchasing power, subtract the expected inflation from the return and use the difference, in this case 4%.

How to use the calculator sensibly

Calculate three versions instead of one. An optimistic one at 8%, a middle one at 6% and a cautious one at 4%. Over 20 years this gives $188,859.34, $145,431.01 and $112,871.66. The range of $75,987.68 shows you how much the end result depends on an assumption nobody knows.

Then adjust the monthly savings instead of the return. You cannot control the return, but you can control your monthly savings. In this example, $50 more a month brings an extra $22,671.93 over 20 years. That is more than a difference of one percentage point in return makes, and it is in your hands.

And plan your monthly savings so that you can keep them up even in a bad year. A savings plan you suspend after three years because it was too ambitious brings less than a smaller amount that runs for thirty years.

Frequently asked questions

How much interest will I earn on $10,000?
At 6% a year and with no further payments, $10,000 grows to around $32,100 after 20 years. Around $22,100 of that is interest. After 30 years, around $57,400 is in the account. At 3% a year, by contrast, you only have around $18,100 after 20 years.
What is the difference between simple interest and compound interest?
Interest is the return on the money you paid in, compound interest is the return on interest that has already been credited. With $10,000 at 6%, simple interest brings $600 every year, so after 30 years you would have $28,000. With compound interest it is $57,400. The difference of around $29,400 comes solely from leaving the interest in the account.
How long does it take for my money to double?
Divide 72 by the interest rate. This is the rule of 72. At 6% that gives 12 years, or 11.9 years when calculated exactly. At 4% it takes 18 years, at 8% just 9 years. The rule of thumb works well for interest rates between 3% and 10%, but it only applies to capital without further payments.
I want to have $100,000 in 20 years. How much do I need to save each month?
Without any interest it would be $417 a month. At 6% a year, around $221 is enough, at 4% it is around $275. The calculator works the other way round. You enter the monthly savings and change them until the final capital fits. Any starting capital you already have lowers the required amount further.
I am 50 and have 15 years left until retirement. Does compound interest still make a difference?
At $500 a month and 6%, you have around $143,500 after 15 years. You paid in $90,000 of that yourself, around $53,500 comes from interest. So a good third of the final capital only comes from the interest. At 4% it is around $122,300, of which around $32,300 is interest.
I have $30,000 in an instant access savings account. Should I invest it all at once or spread it over monthly payments?
Mathematically, the lump sum comes out ahead, because the money earns interest from the start. At 6%, $30,000 grows to around $53,700 in 10 years. If you spread the same sum over $250 a month for 10 years, you end up with around $40,600. This calculation assumes a steady return. It says nothing about a market drop shortly after you pay in.
What return is realistic for a broadly diversified equity ETF over the long term?
Historically, broadly diversified stock indices have averaged between 6% and 8% a year over long periods, with individual years far above and below that. That is no promise for the future. The range shows how much the result depends on this assumption. $10,000 starting capital and $250 a month over 20 years give around $112,900 at 4% and around $188,900 at 8%.
Does the compound interest calculator include taxes?
No, the calculator shows the gross development before taxes. With a starting capital of $10,000 at 6%, around $22,100 of interest builds up over 20 years, and part of it may go to taxes. How interest, dividends and price gains are taxed, and whether tax is due every year or only when you sell, depends on the country you live in. Check the rules where you live, or ask a tax advisor.

Model calculation based on your inputs. Not investment, tax or legal advice and no promise of future performance. Check with a tax advisor whether something fits your situation. Full disclaimer.