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How compound interest works
Compound interest means you earn interest not just on your original deposit, but on the interest that's already accumulated. Over long periods, this creates exponential rather than linear growth — which is why starting early matters more than almost any other factor.
Why time matters more than the amount
Someone who invests a smaller amount starting at age 25 will often out-earn someone investing twice as much starting at age 40, simply because compounding has more years to work. This calculator shows that effect clearly using your own numbers.
Frequently asked questions
How does compound interest work?
Compound interest is interest calculated on both your initial principal and the accumulated interest from previous periods, causing your money to grow faster over time compared to simple interest.
What is a good interest rate for investing?
Historical stock market average returns are around 7-10% annually before inflation. High-yield savings accounts typically offer 4-5%. The right rate depends on your risk tolerance and time horizon.
Does this account for inflation?
No, this calculator shows nominal future value. To estimate real purchasing power, you'd typically subtract an assumed inflation rate (historically around 2-3% annually) from your return rate.