What is compound interest?
Compound interest means you earn interest on your original money and on the interest it has already earned. Early on the growth looks slow. Over 10, 20 or 30 years, it can end up larger than everything you put in.
The three levers
- Time matters most. Starting five years earlier often beats contributing more later.
- Monthly contributions keep the snowball growing. Automating them makes it easy.
- Rate of return depends on where the money is. Savings accounts are steady but lower. Investments can grow more but go up and down.
Go deeper: Compound interest explained simply
Questions people ask
What rate should I use?
For a savings account, use its current APY. For long-term stock market investing, many people test a range like 5–8% to see different outcomes. Past returns don't guarantee future results.
Does this include taxes or inflation?
No. It shows growth before taxes and inflation. To think in today's dollars, you can subtract about 2–3% from your rate as a rough adjustment for inflation.
How is interest calculated here?
Interest is compounded monthly at your yearly rate divided by 12, and your monthly contribution is added at the end of each month.
