See how your money grows over time with the magic of compounding. Enter your initial investment, monthly contribution, and expected return to visualize your wealth building.
Compound interest is often called the "eighth wonder of the world" — it's the process where interest earned on your investment generates its own interest over time. Unlike simple interest (which only earns on your original amount), compound interest creates a snowball effect that accelerates your wealth the longer you stay invested.
Where P = principal, r = annual rate, n = compounding frequency, t = years, and PMT = regular contribution amount.
Enter your starting amount (initial investment), how much you plan to add each month, the expected annual return rate, and how many years you plan to invest. The calculator instantly shows your projected future value, broken down into contributions vs interest earned.
The average annual return of the S&P 500 has been approximately 10% before inflation (about 7% after inflation) over the past 50 years. For a conservative estimate, use 7-8%. For an aggressive projection, use 10-12%.
If you invest $500/month starting at age 25 with an 8% return, you'll have approximately $1.4 million by age 65. Wait until 35 to start, and you'll only have about $590,000 — less than half. Those extra 10 years of compounding are worth over $800,000. Time is your greatest asset.
With simple interest, $10,000 at 8% earns $800 every year — always $800. After 20 years: $26,000. With compound interest, that same investment grows to $46,610. The difference? $20,610 in extra earnings, purely from interest earning interest. The gap grows dramatically over longer periods.
More frequent compounding (daily vs annually) produces slightly higher returns, but the difference is small. Monthly compounding is standard for most investments. The real key is time in the market and consistent contributions.
The S&P 500 has historically returned about 10% annually (7% after inflation). Bond funds average 4-6%. High-yield savings accounts offer 4-5% currently. Use 7-8% for a balanced, realistic long-term projection.
Stocks don't pay "interest" in the traditional sense, but your investment compounds through price appreciation and reinvested dividends. Over long periods, the effect is similar to compound interest — your gains generate their own gains.
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