The curve that looks boring, then doesn’t
Compounding is famously underwhelming at first: after five years the milestone table above shows growth contributing only a modest slice of the balance. Then the machine takes over. In the default scenario, by the final years the modeled account earns more per year from growth than the amount added from contributions. That crossover illustrates how timing changes a constant-return projection; real returns can be uneven or negative.
Three levers, unequal power
Time, the assumed rate, the starting amount, and monthly contributions all change the result. The rate is particularly uncertain, so compare a lower case and a zero-return case instead of treating the default as expected performance. Contributions are an input you can vary to test what fits the budget.
Method, example, and sources
How this calculator works
The model converts the annual return into a nominal monthly rate, applies that rate to the existing balance, and then adds the monthly contribution at the end of each month. It repeats that cycle for the selected number of years and separates money contributed from modeled growth.
Worked example
With $10,000 to start, $500 added at the end of each month, a 7% assumed annual return, and 20 years, the model ends near $300,851. Of that amount, $130,000 is contributed cash and about $170,851 is modeled growth. Running the same inputs at 5% and 7% is more informative than treating either rate as a forecast.
What the estimate leaves out
- The return stays constant; real investments rise and fall in an unpredictable sequence.
- The result is before investment fees and taxes and does not automatically adjust for inflation.
- Contributions are assumed to arrive at the end of each month, with no withdrawals.
Primary sources
Frequently asked questions
How does compound interest actually work?
Compound interest applies each period’s return to the updated balance, including earlier growth. With a positive constant rate and no withdrawals, the modeled curve steepens over time. Real investment returns are not constant, so the calculator is best used to compare scenarios rather than predict an ending balance.
What rate of return should I use?
For a savings product, use its stated APY only for the period in which that rate applies. For an investment, no single future return is knowable: run a conservative range and include a low-return case. Historical performance can provide context but does not forecast your result.
How often does compounding happen in this calculator?
Monthly, with contributions added at the end of each month. Actual products may compound daily, monthly, or on another schedule, and an advertised APY already reflects its stated compounding convention. Match the input and timing to the scenario you want to compare.
What is the rule of 72?
A rough mental shortcut: divide 72 by a positive annual rate to estimate doubling time. At 7%, it suggests about 10 years; at 10%, about 7 years. It is an approximation for a constant rate, not a forecast of investment performance.
Does this account for inflation or taxes?
No — results are nominal and pre-tax. To model purchasing power, enter an inflation-adjusted return based on your own inflation assumption. Tax treatment depends on the account, transactions, and jurisdiction, so it is not inferred here.