Compound interest calculator

What compounding actually does

Compound interest means the return you earned last period earns its own return this period. Simple interest grows in a straight line; compound interest bends upward, and the bend is what makes long horizons behave so differently from short ones.

For a single lump sum, the future value is:

FV = P × (1 + r)^n

With regular contributions added at the end of each period, a second term is added for the stream of payments:

FV = P × (1 + r)^n + PMT × ((1 + r)^n − 1) / r

Here r is the rate per compounding period, not per year: at 6% compounded monthly, r is 0.005 and n is the number of months. Getting that conversion wrong is the single most common error in do-it-yourself spreadsheets.

Reading the chart

The columns split each year into what you contributed and what the returns added. Early on, the contribution block is almost the entire bar — your saving rate is doing all the work, and returns on a small balance are small in absolute terms. Watch for the year when the growth block passes the contribution block. That crossover is the clearest single indicator of whether a plan has enough time in it.

If the crossover never happens within your horizon, the plan depends entirely on how much you can put in rather than on investment returns. That is not a failure, but it changes what you should optimise: contribution amount, not rate.

Time beats rate, and both beat frequency

Three levers control the outcome, and they are not equally powerful.

This ordering explains why starting early matters so much more than picking well. Ten years of ordinary returns beats a decade of clever ones you never had.

What one percentage point is worth over thirty years

Everything is held fixed except the assumed return: $10,000 to start, $500 a month, thirty years. Every row contributes the same $190,000.

At 3% the plan turns your contributions into 1.66 times what you put in. At 7% it is 3.64 times. The gap between the 6% and 7% rows — one percentage point — is $128,667. That is what makes fees a first-order decision rather than a detail: a fund charging one point more moves you down a row in this table, permanently.

Compounding does its work at the end

Same plan at 7%, varying only how long it runs. A longer horizon also means more money contributed, so contributions and growth are listed separately.

The last column is the part of the balance you did not deposit: 34.4% at ten years, 56.8% at twenty, 72.5% at thirty, 83.1% at forty. For the first decade the balance is mostly just your own money, arriving on schedule. Compounding is barely visible.

Compare the thirty- and forty-year rows and the shape becomes obvious. Growth rises from $501,150 to $1,225,521 — the extra decade alone contributes $724,371, more than the previous thirty years produced together, on $60,000 of additional deposits. So “start early” is an imprecise way to put it. The accurate version is that the most valuable years are the last ones, and stopping at year thirty does not cost you one year.

Translating the balance into today’s money

Every figure above is nominal. What $691,150 will buy depends on what happens to prices in between, so here is the same plan with only the inflation assumption moving.

At 3% a year over thirty years, that $691,150 buys what $284,745 buys now. Fifty-nine percent of it is gone — not lost from the account, but from what the account can do. At 5% inflation, 77% goes. The shortcut is to subtract: earning 7% with 3% inflation is a real return of roughly 4%, and the “today’s money” column matches what 4% for thirty years would give.

This column exists because retirement targets are set in today’s prices and then checked against nominal balances. “A million dollars is enough” is a statement about what a million buys now. To still be true in thirty years at 3% inflation, the account needs about $2.43 million.

The number that keeps you honest

The nominal final balance is the exciting figure. The inflation-adjusted one is the useful figure. At 2% inflation, prices roughly double every 35 years; at 3%, every 24. A projection that ignores this consistently overstates what the money will actually buy, which is exactly the error you cannot afford in retirement planning.

Two things this calculator deliberately does not model: fees, which compound against you exactly as returns compound for you, and tax, which varies too much by country to guess at. Subtract your fund charges from the return rate before entering it, and treat the result as a pre-tax figure.

A note on smooth curves

Real markets do not deliver 7% a year; they deliver 22%, then −9%, then 4%. The smooth curve here is an average path, not a forecast, and the order in which good and bad years arrive matters a great deal if you are drawing money out. Use this to size the shape of a plan, and expect the actual line to be far messier.