How compound interest works
Compound interest is growth on your growth. Each period, you earn a return not just on the money you put in, but on every dollar of return you’ve already earned. Early on the effect is modest; given enough time it becomes the dominant force in your balance — which is why the single most valuable input below is usually years, not rate.
The core formula
A = P · (1 + r/n)n·t
where P = principal, r = annual rate, n = compounds per year, t = years. Regular contributions are each compounded for their own remaining time, which this tool simulates period by period.
What makes this calculator different
- Real (inflation-adjusted) returns. The headline number most tools show is in future dollars. We also show what it’s worth in today’s money — the figure that reflects real buying power.
- Fees and taxes. A small expense ratio compounds against you for decades. Model it, and your tax on gains, to see your true take-home.
- Contribution step-ups. Most people’s ability to save grows with their income. Add an annual raise to model that instead of assuming a flat deposit forever.
- Full transparency. Every year is laid out in a table you can export to CSV, and every assumption is stated — no black box.
Frequently asked questions
What is compound interest?+
Compound interest is the interest you earn on both your original money and on the interest it has already earned. Because each period’s growth is added to the balance, your returns accelerate over time — the effect Einstein is often (apocryphally) said to have called the eighth wonder of the world.
How is compound interest calculated?+
For a lump sum, the formula is A = P(1 + r/n)^(nt), where P is the principal, r is the annual rate, n is the number of times interest compounds per year, and t is the number of years. When you add regular contributions, each deposit grows for the time remaining until the end, so this calculator simulates every period to combine the lump sum and the contribution stream accurately.
Why does this calculator show an inflation-adjusted value?+
A dollar in 30 years buys far less than a dollar today. The “real” (inflation-adjusted) value restates your future balance in today’s purchasing power, which is the figure that actually tells you how much better off you’ll be. Most quick calculators ignore this entirely.
How much difference do fees really make?+
A lot. A 1% annual fee doesn’t cost you 1% of your money — it compounds against you every year. Over a multi-decade horizon a 1% fee can quietly consume a quarter or more of your final balance. Enter your fund’s expense ratio to see the impact for yourself.
Does compounding frequency matter?+
It helps, but with diminishing returns. Moving from annual to monthly compounding gives a noticeable bump; moving from daily to continuous compounding is nearly imperceptible. The return rate and your contribution amount matter far more than the compounding interval.
Disclaimer: This calculator is for educational purposes only and assumes a constant rate of return, which real markets never provide. It is not financial, investment, or tax advice. Consider speaking with a qualified professional before making decisions.