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 account earns more per year from growth than you add from contributions — your money out-earns your saving. That crossover is the entire argument for starting early and staying invested through the flat-feeling early years.
Three levers, unequal power
Play with the fields and watch the final number: time is the strongest lever (doubling the horizon far more than doubles the result), rate is second (and mostly outside your control — beware anything promising to beat the market), and the contribution is the one entirely in your hands. The practical playbook: automate the monthly amount, raise it with every pay raise, and let time do the part you can’t.
Frequently asked questions
How does compound interest actually work?
Compound interest means you earn returns on your returns. Year one, $10,000 at 7% earns $700. Year two, you earn 7% on $10,700 — $749. The growth curve starts almost flat and steepens relentlessly: the last five years of a 30-year investment typically earn more than the first fifteen combined. Time in the market is the main ingredient.
What rate of return should I use?
For a diversified U.S. stock portfolio, the long-run historical average is roughly 10% before inflation, or about 7% in real (inflation-adjusted) terms — 7% is the standard planning assumption. For bonds or savings accounts, use the actual current yield. To be conservative, run 5% and 7% and plan on the lower result.
How often does compounding happen in this calculator?
Monthly, matching how most investment accounts and savings products accrue. Contributions are added at the end of each month. Annual-only compounding at the same nominal rate would produce a slightly smaller result; daily, a slightly larger one — the differences are small compared to the impact of rate and time.
What is the rule of 72?
A fast mental shortcut: divide 72 by your annual return to estimate how many years money takes to double. At 7%, roughly every 10 years; at 10%, about 7 years. It makes the case for starting early: a dollar invested at 25 doubles one more time than a dollar invested at 35.
Does this account for inflation or taxes?
No — results are nominal and pre-tax. To think in today’s purchasing power, use a real return (nominal minus ~2.5–3% inflation). Taxes depend on the account: 401(k)/IRA growth is tax-deferred or tax-free (Roth), while taxable accounts owe tax on dividends and realized gains.