Compound Interest Calculator

The math behind compound growth

Compound interest earns returns on your returns. In the first year, you earn interest only on your original investment. In year two, you earn interest on your original investment plus last year's gains. This compounding effect accelerates over time — the gap between what you put in and what your portfolio is worth widens dramatically in later decades.

$500 per month invested at 7% annually grows to roughly $405,000 after 25 years. Of that, only $150,000 is money you contributed — the remaining $255,000 is compound growth. Time is the most important variable. Starting 10 years earlier more than doubles the outcome.

Choosing the right return assumption

The S&P 500 has returned about 10% annually on average since 1926 — roughly 7% after inflation. A 60/40 stock-bond portfolio historically returns 8–9% nominal. High-yield savings accounts pay 4–5% today but have historically averaged 2–3%.

For retirement planning, most financial planners use 6–7% as a conservative long-term assumption for a diversified portfolio. This accounts for inflation, fees, and the reality that markets don't return a smooth percentage every year. If you want to model inflation-adjusted (real) returns, use 4–5% for stocks.

Tax-advantaged accounts amplify compounding

In a taxable brokerage account, you owe taxes on dividends and realized gains each year, which drags on compounding. Tax-advantaged accounts remove this drag. A 401(k) or Traditional IRA defers taxes until withdrawal. A Roth IRA is funded with after-tax dollars but all growth and withdrawals are tax-free.

The 2026 contribution limits are $23,500 for a 401(k) ($31,000 if age 50+) and $7,000 for an IRA ($8,000 if 50+). At minimum, contribute enough to your 401(k) to capture the full employer match — leaving match money on the table is the single costliest mistake in retirement planning.

Why starting early matters more than investing more

Someone who invests $300/month from age 25 to 65 at 7% ends up with roughly $720,000. A person who waits until 35 and invests $600/month — twice as much — ends up with roughly $580,000. The earlier investor contributed $144,000 total; the later investor contributed $216,000 and still ended up with less. That 10-year head start created $140,000 of additional wealth because the early contributions had an extra decade to compound.