Compound interest is interest earned on both your original investment and on the interest that has already accumulated. It's the reason a small, consistent investment can grow into a substantial sum over time — and it's often called the most powerful force in personal finance.
Here's a concrete example: if you invest $5,000 today and add $300 per month at a 7% average annual return, after 20 years you'll have approximately $161,000 — even though you only contributed $77,000 out of pocket. The remaining $84,000 is pure compound growth. After 30 years, the same setup produces roughly $381,000, with $113,000 contributed and $268,000 from compounding. Time is the critical variable.
Final Balance is the total value of your investment at the end of your chosen time horizon, including all contributions and growth. Total Invested is the money you actually put in — your initial lump sum plus all monthly contributions. Growth is the difference: the money your money made for you. The larger this number relative to your contributions, the more compound interest is working.
The default 7% return in this calculator reflects the historical average of the S&P 500 adjusted for inflation. The nominal (before inflation) average is closer to 10%. Small differences in return rate have enormous effects over long periods: at 6%, $300/month for 30 years produces $300,000. At 8%, the same contributions produce $447,000. That 2% difference is worth $147,000 — which is why keeping investment fees low (under 0.10% for index funds) matters more than most people realize.
Retirement savings: If you're 25 and contribute $500/month to a Roth IRA and 401(k) at a 7% return, you'll have approximately $1.07 million by age 65. Starting at 35 with the same contribution gives you about $490,000 — less than half. College savings: A 529 plan with $200/month for 18 years at 6% produces roughly $77,000. Emergency fund: A high-yield savings account at 4.5% APY won't compound as dramatically, but it still adds up — $10,000 earns about $450 per year with no effort.
Next step: This calculator shows the math, but the real question is where to put your money. Our beginner's investing guide walks through opening an account, choosing the right index fund, and setting up automatic contributions. Our Roth IRA vs. 401(k) comparison helps you pick the right account type.