How does the Compound Interest Calculator work?
Formula: A = P · (1 + r)n. The longer the term, the stronger the effect.
Background & details
Why compounding is so powerful
With compound interest, not only your principal but also every bit of interest already credited earns interest again. The capital does not grow in a straight line but exponentially: the early years look unspectacular, yet the yearly gain keeps getting larger. The real leap usually shows up only in the second half of the term.
How to read the result
The final amount is your starting sum plus all accumulated interest at the end of the period. The separately listed total interest is exactly the part created by compounding. Compare it with your principal: over long terms at a decent rate, the interest comfortably exceeds the original stake.
Realistic assumptions
- 2–4% for safe assets like fixed-term deposits or high-grade government bonds.
- 5–7% as the long-run average of broad equity markets – across decades, not every single year.
- Above 10% is possible but comes with high risk. Using a double-digit rate as a permanent assumption quickly produces unrealistic projections.
Common mistakes
The classic slip is an over-optimistic rate across very long horizons – small differences snowball. 7% instead of 5% over 30 years nearly doubles the final amount. Equally, people forget inflation: a nominal 6% at 2% inflation is only about 4% in real terms. To see real purchasing power, use the inflation-adjusted rate.
When to use this calculator
It is built for the lump sum: a fixed amount that sits and compounds for years – an inheritance, a severance, a bonus. As soon as you add a regular monthly contribution, the savings calculator mirrors reality better. For an equity ETF with ongoing fund fees, the ETF savings-plan calculator additionally accounts for the TER. Treat the compound calculator as a thinking tool: play with rate and time to feel just how strongly time works in your favour.