Compound Interest Calculator

What is compound interest?

Compound interest is interest paid on your principal and on the interest you’ve already earned. The SEC’s own classroom example is $100 earning 5% a year: $105 after one year, $110.25 after two. That extra 25 cents is interest on interest, and over decades it ends up doing most of the work.

With the calculator’s defaults ($10,000 to start, $500 a month, 7% a year for 30 years) you’d end with $660,849. You put in $190,000 of that. The other $470,849 is growth, and growth passes the total you’ve contributed in year 18.

How does this calculator do the math?

It steps through every month. The balance grows by one month’s share of the yearly rate, then your contribution goes in at the end of the month. Once a year, the contribution rises by the yearly increase if you set one.

Each month:
balance = balance × (1 + rate ÷ n)^(n ÷ 12) + monthly contribution

n = 1 (annually), 4 (quarterly), 12 (monthly) or 365 (daily)

In today's dollars = final balance ÷ (1 + inflation)^years

Over a full year that growth factor works out to exactly (1 + rate ÷ n)^n, the textbook figure for interest compounded n times a year. With monthly compounding, the result is the standard future-value formula for monthly deposits made at the end of each month, so you can check it against a spreadsheet’s FV function.

If you compare it with other calculators and see a different answer, check how they time the deposits. Some add a whole year’s contributions in one lump at the end of the year when you pick annual compounding. With $600 a month for 30 years at 8%, that shortcut gives $815,639, while this calculator lets each monthly deposit start growing the month after it goes in and gives $845,130. With monthly compounding there’s no timing question left inside the year, and ours gives $894,216, the same as the standard future-value formula.

Neither approach is wrong. Money in a brokerage account or a 401(k) starts earning as soon as it’s invested, which is closer to what this calculator assumes.

What happens if you start at 25 instead of 35?

Sam starts putting $500 a month into an index fund at 25. Alex starts at 35. Both stop at 65 and both earn 7% a year.

Sam puts in $60,000 more and ends with $651,045 more. To catch up, Alex would need to save about $1,060 a month from 35 onward, roughly double.

The stranger result: if Sam saved $500 a month only from 25 to 35 and then stopped completely, the $85,526 built up in those ten years would grow to $651,045 by 65. That beats Alex’s 30 years of saving, with a third of the money put in. The last decades of growth come from money that has been compounding the longest, and nothing later can buy those years back.

How long does it take money to double?

The rule of 72 is the quick answer: divide 72 by the yearly rate, and you get roughly how many years it takes to double. At 9% that’s about 8 years.

It’s a good estimate in the middle of the range and drifts at the edges:

Around 6% to 10% it’s off by a month or two. At very low rates it slightly overstates the wait, and at high rates it understates it. For planning a retirement, that’s accurate enough.

Does compounding frequency matter?

Less than you’d think. Here’s the default example, and $10,000 on its own with no monthly deposits, at 7% for 30 years:

Going from yearly to daily compounding adds $33,168. Raising the rate from 7% to 8% with yearly compounding adds $144,053. Daily compounding at 7% is the same as 7.25% compounded once a year, so it’s worth about a quarter of a percentage point. Rate and time do the heavy lifting.

One practical note on savings accounts and CDs: banks quote an annual percentage yield, which under federal rules already reflects the interest rate and how often it compounds over a year. If you’re entering an APY, choose annual compounding so you don’t count compounding twice.

For stock funds, the rate you enter is an average yearly return, not an interest rate, and annual compounding is the natural fit.

Why show today’s dollars?

The big number at the top is in future dollars, the figure your account statement would show. By then prices will be higher. At 3% inflation, prices rise by a factor of about 2.4 over 30 years, so the default $660,849 would buy what $272,261 buys today.

I’d plan with the smaller number. If you’re wondering whether a balance will cover your spending in retirement, compare today’s-dollar figures with today’s budget, which is how the Coast FIRE and FIRE calculators on this site work.

How does this connect to Coast FIRE?

Your Coast FIRE number is compound growth run backwards. The question is how much you need invested today so that growth alone, with no more contributions, reaches your full retirement target by the time you want to stop. If you’re new to the idea, what Coast FIRE is covers it in more detail.

Say you’re 35, want to retire at 65 and plan to spend $60,000 a year. At a 4% withdrawal rate your FIRE number is $1,500,000. With 7% returns and 3% inflation, a real return of 3.88%, your Coast FIRE number is $478,294. Put that amount into this calculator with no monthly contribution for 30 years at 7%, and it grows to $3,640,894, which is $1,500,000 in today’s dollars. The two calculators agree.

The Coast FIRE calculator does that math for you from your age and spending, and Coast FIRE numbers by age shows the targets age by age. For the full early-retirement target, use the FIRE calculator, and to see how long money lasts once you start spending it, the 4% rule calculator.

What this calculator leaves out

It uses the same rate every year. Stocks don’t behave like that: a year of 20% gains can be followed by a year of losses, and the order matters once you’re adding or taking out money. Treat the result as a middle-of-the-road path, not a promise.

Fees come straight off your return. The SEC’s page on understanding fees shows $100,000 growing at 4% for 20 years ending near $208,000 with a 0.25% yearly fee and near $179,000 with a 1% fee. If you pay a 1% advisory fee on a 7% portfolio, enter 6%. For the default example that’s $544,691 instead of $660,849.

Taxes aren’t here either. In a regular taxable account, interest from bank accounts, money market accounts and CDs is taxable income. In a traditional IRA, earnings are taxed when you take them out rather than along the way, which is closer to what the calculator shows.