How compound interest works
With compound interest, you earn returns not only on the money you put in but also on the returns it has already earned. Over many years this snowball effect can become larger than your own contributions.
The calculator adds your monthly deposit each month and compounds growth monthly at the yearly return you enter.
Three things that matter most
- Time – starting ten years earlier can matter more than saving twice as much later.
- Rate of return – small differences add up. Fees on investments reduce your real return.
- Regular contributions – automatic monthly deposits keep you on track.
Frequently asked questions
What is the rule of 72?
Divide 72 by your yearly return to estimate how many years it takes money to double. At 6%, money doubles in about 12 years.
Is compound interest the same as APY?
APY (annual percentage yield) shows the yearly return including compounding, which makes accounts with different compounding schedules easy to compare.
What return can I expect?
Savings accounts and CDs pay a set rate. Stock market returns vary year to year; long-term averages are not guaranteed.