$200/mo
Monthly contribution at 7% for 20 yrs → ~$104k
72
Rule of 72: years to double = 72 ÷ interest rate
7%
Historical average real return of US stock market
Daily
Most aggressive compounding frequency
The compound interest formula
The basic compound interest formula is A = P(1 + r/n)^(nt), where P is principal, r is the annual interest rate, n is compounding periods per year, and t is time in years. When you add regular contributions, the formula extends to account for each contribution's own compounding period. The calculator handles this complexity for any contribution frequency and compounding period.
The key insight is that compound interest is nonlinear. The same $200/month contribution generates far more in years 15–20 than in years 1–5, because the balance in later years is much larger and earns proportionally more interest. This is why starting early — even with small amounts — has an outsized long-term impact.
Compounding frequency matters
- Annual compounding: interest added once per year — simplest, least powerful
- Quarterly compounding: interest added 4 times per year
- Monthly compounding: most common for savings accounts and investments
- Daily compounding: interest added 365 times per year — maximizes growth slightly over monthly
- Continuous compounding: the theoretical limit — practically identical to daily at normal rates
How to use the compound interest calculator
- Enter your starting principal (or $0 if starting fresh)
- Set the annual interest rate — use historical averages (7% real for equities) or your account's stated rate
- Enter your regular monthly contribution amount
- Set the time horizon in years
- Choose compounding frequency
- Review the year-by-year growth chart and final balance breakdown between principal and interest
💡 The cost of waiting
Starting at 25 vs. 35 with the same $300/month at 7% produces roughly $730,000 vs. $365,000 at age 65 — a $365,000 difference from just 10 years. The calculator's year-by-year view makes this gap visceral in a way that abstract numbers can't.
Common mistakes to avoid
- Using the nominal rate when the account uses a different compounding frequency — compare APY (annual percentage yield), not APR
- Ignoring inflation — a 7% return with 3% inflation is only 4% real growth
- Stopping contributions during market downturns, which sacrifices the cheapest share purchases
- Overestimating the rate — 7% is a long-term average; any single decade could be lower or higher
- Not accounting for taxes on investment gains outside tax-advantaged accounts
Related calculators
The 401(k)/RRSP Planner applies compound interest logic specifically to retirement accounts including employer match. The Roth IRA vs. Traditional IRA Calculator shows how tax treatment changes the compound growth picture. And the Net Worth Calculator puts your investment growth in the context of your full financial picture.