Compound interest and regular saving
Compound interest means you earn interest on your interest. Each period, the interest is added to the balance, and the next period's interest is calculated on that larger balance. Over a few years the effect is small; over decades it dominates, which is why time is the most powerful input in any savings plan.
This calculator projects a balance from a starting amount, a monthly contribution, an annual rate and a number of years, with the compounding frequency of your choice. It shows how much of the final amount you paid in and how much is growth, year by year.
How to use it
- Enter the starting principal; 0 is fine if you start from nothing.
- Enter how much you add each month.
- Enter the expected annual rate and the number of years.
- Choose how often interest compounds: yearly, semi-annually, quarterly, monthly or daily. Then read the projected balance and the year-by-year table.
Example: 20 years of steady saving
Start 10,000, add 300 a month, 7% a year, 20 years, compounded monthly
Projected balance: $196,665.39 Total contributions: $82,000.00 Total interest: $114,665.39
58% of the final balance is growth rather than money paid in. With the same inputs over 10 years, growth would be only 36%.
How the projection works
Each compounding period, the balance grows by the annual rate divided by the number of periods per year, and then that period's share of the contributions is added. Your monthly contribution is spread evenly over the periods: with quarterly compounding, three months of contributions are added at the end of each quarter. Money added at the end of a period earns nothing in that period, which makes the projection slightly conservative.
More frequent compounding helps, but less than people expect. At 7%, yearly compounding gives 7% a year, while monthly compounding gives an effective 7.23%. The rate and the number of years matter far more than the frequency.
Choosing a realistic rate
Savings accounts and bonds pay a known rate. Stock market returns are not fixed: they average out over long periods but swing widely from year to year, so a single rate gives a smooth line that real markets never follow. Many planners use a cautious figure, and subtract fees and expected inflation if they want the result in today's money. A 7% return with 3% inflation is roughly 4% in real terms.
The rule of 72
To estimate how long money takes to double, divide 72 by the annual rate in percent. At 6% it takes about 12 years, at 9% about 8 years. The rule works because of compounding, and it is a handy check on any projection you see.
Questions
Does the result include taxes?
No. Interest and investment gains may be taxed depending on your country and account type, which lowers the real result.
Can I model withdrawals?
Not with this tool; contributions must be zero or positive. It is meant for the saving phase.
Why does daily compounding barely change the result?
The gain from compounding more often shrinks quickly. Going from monthly to daily at 7% adds only a few hundredths of a percent a year.