The power of compound interest
Compound interest means you earn interest on your interest, not just your original deposit. Over long periods this snowball effect does most of the heavy lifting — which is why starting early matters so much. This calculator combines an initial deposit with regular monthly contributions and compounds monthly.
The formula
Future value is FV = P(1+r)ⁿ + PMT·[((1+r)ⁿ − 1) / r], where P is your starting balance, PMT is the monthly contribution, r is the monthly rate (annual ÷ 12), and n is the number of months.
Notice how, over 20–30 years, the “interest earned” slice often grows larger than everything you actually contributed. That's compounding at work.
Frequently asked questions
What interest rate should I use?
For a savings account, use its APY (often 0.5%–5%). For long-term stock market investing, many people model 6%–8% as a long-run average, though real returns vary year to year and are never guaranteed.
What does compounded monthly mean?
It means interest is calculated and added to your balance every month, so the next month you earn interest on a slightly larger amount. More frequent compounding produces slightly higher growth than annual compounding.
Why is starting early so powerful?
Because compounding multiplies over time, money invested in your 20s has decades to grow. Even small contributions started early often beat larger contributions started later.