Calculate exactly how compound interest grows your savings or investment. Choose compounding frequency and see the year-by-year breakdown of principal versus interest earned.
| Frequency | $10,000 @ 5% for 10 yrs |
|---|---|
| Annually | $16,288.95 |
| Quarterly | $16,436.19 |
| Monthly | $16,470.09 |
| Daily | $16,486.65 |
Interest is calculated on principal plus everything previously earned, so each period starts from a larger base. Growth is exponential rather than linear, which is why the curve looks almost flat early and then steepens sharply.
Of the three inputs you can influence — amount, rate and time — time has the largest effect, because it sits in the exponent while the others do not.
This is the practical argument for starting early with a modest amount rather than waiting to start with a larger one. Years cannot be recovered later by contributing more.
Adding a monthly amount changes the shape considerably, since each contribution begins compounding from the moment it arrives. Early contributions therefore do far more work than late ones of the same size.
A projection showing 7% annual growth over 30 years is in nominal terms. With inflation running at, say, 2.5%, real purchasing power grows at closer to 4.5%.
Both figures are legitimate, but they answer different questions. For "will this cover my costs in retirement", the inflation-adjusted figure is the relevant one.
Any compound projection assumes a steady rate. Real markets do not deliver that — they deliver volatile sequences that average out over long periods. The destination may be broadly right while the path is nothing like the smooth curve.
Historical averages also come from a particular period and are not a promise about the next one. See Compound Interest: Why the Math Rewards Patience.