See how your investments grow over time
Compound interest is interest calculated on both the initial principal and all previously accumulated interest. Einstein reportedly called it the "eighth wonder of the world" — the longer your money compounds, the faster it grows.
Starting earlier makes a massive difference: $500/month from age 25 at 7% grows to ~$1.3M by 65. Starting at 35 with the same contributions reaches only ~$600K — half the amount for the same monthly investment.
Projections are estimates based on a constant rate of return. Actual investment returns vary and past performance does not guarantee future results.
Compound interest is interest earned on both your original investment (principal) and the interest you've already accumulated. Unlike simple interest, which only applies to the principal, compound interest grows exponentially over time. The more frequently interest compounds (daily vs. monthly vs. annually), the faster your money grows.
The S&P 500 has historically returned an average of 7–10% per year before inflation, or roughly 5–7% after adjusting for inflation. For conservative planning, most financial advisers suggest using 6–7% as a long-term average return for a diversified stock portfolio. Bond-heavy portfolios typically return 3–5%. Past performance does not guarantee future results.
A common guideline is to invest at least 15% of your gross income for retirement. If you're starting late, you may need to invest more. If you're early in your career, even small amounts make a significant difference due to compound growth. Use this calculator to see how different monthly contribution amounts affect your long-term outcome.
With annual compounding, interest is calculated and added once per year. With monthly compounding, it's calculated 12 times per year — meaning you earn interest on interest more frequently, resulting in slightly more growth. Most savings accounts and investment funds compound monthly or daily. The difference becomes significant over long time horizons.
The most accessible way to start is through a tax-advantaged account like a 401(k) or IRA (US), or a Stocks & Shares ISA or SIPP (UK). Contribute enough to get any employer match first — that's an instant 50–100% return. Then consider low-cost index funds that track broad market indices like the S&P 500 or FTSE All-World for long-term, diversified growth.
This calculator uses the standard compound interest formula: A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)], where P is the initial investment, r is the annual rate, n is compounding frequency, t is years, and PMT is the regular monthly contribution. The key insight is that returns are earned on both original capital and all previously accumulated gains — a self-reinforcing mechanism that accelerates over time.
Real returns are not smooth or constant — markets have good years and bad years, and the sequence of returns matters if you're drawing down in retirement. A large loss early in the period can permanently impair a portfolio even if average returns recover to look fine on paper.
Inflation is the other critical omission. If your investment grows at 7% but inflation runs at 3%, your real purchasing power grows at roughly 4%. For goals 10–20+ years away, consider projecting in real (inflation-adjusted) terms. For UK Stocks and Shares ISA holders, the returns shown are tax-free; in general investment accounts, Capital Gains Tax and dividend tax will reduce net gains.
📖 Related Guide
Why compounding is different from simple interest, the Rule of 72, why starting early is worth more than saving more later, and how to account for inflation in your calculations.
Read the guide →Figures are estimates for guidance only. See about this site — how we source data and what these tools can and cannot do.
Compound interest rewards time above almost everything else. Consider two investors: Alice starts investing £300/month at age 25 and stops at 35 (10 years, £36,000 total invested). Bob starts at 35 and invests £300/month until age 65 (30 years, £108,000 total). Assuming 7% annual returns, Alice ends up with roughly £340,000 at 65 — significantly more than Bob's £303,000 — despite investing one-third the amount. Her money had 40 years to compound, while Bob's averaged 15 years.
This illustrates the exponential nature of compounding: the largest gains occur in the final years, when a large base is compounding. Missing the first decade of potential growth is extremely difficult to recover from, even with much higher contributions later.
Return rate assumptions dramatically affect long-term projections. A small difference in annual return — 5% vs 7% — leads to vastly different outcomes over 30 years. The question is: what can you reasonably expect?
Long-run historical data suggests UK equities (FTSE All-Share) have returned approximately 5–7% annually after inflation. Global equities (MSCI World) have averaged closer to 8–10% in nominal terms over the past 30 years, though this period included exceptional US tech growth that may not be repeated. A cautious long-term planning assumption of 5–7% nominal (3–5% real, after inflation) is defensible for a diversified equity portfolio. Cash and bonds return less; property returns vary widely by location.
Important: projections compound at a fixed rate, which real investments don't do. Markets fall sharply in some years and rise sharply in others. A 7% average may include a -40% year followed by a +50% year. The sequence of returns matters — poor early returns just before or during retirement can permanently damage a portfolio even if the long-run average is healthy.
Compounding frequency — whether interest is applied daily, monthly, quarterly, or annually — does affect the final value, but the difference is smaller than most people expect. £10,000 at 7% compounded annually becomes £19,672 after 10 years. At monthly compounding, it becomes £20,097. The difference is £425 over a decade — meaningful but not transformational.
For most long-term investors, compounding frequency matters far less than the return rate, the consistency of contributions, and the length of time invested. Equity investments don't compound in the mathematical sense anyway — returns come through capital appreciation and reinvested dividends, which behave differently from interest. The compounding model is best understood as an approximation of how reinvested returns grow over time.
The inflation rate input in this calculator shows your inflation-adjusted (real) final value — the purchasing power equivalent in today's money. This is crucial for retirement planning: £500,000 in 30 years is not worth £500,000 in today's terms. At 2.5% average inflation, it's worth approximately £240,000 in today's purchasing power.
Real return (return minus inflation) is what actually matters for wealth building. If your investments return 7% but inflation runs at 3%, your real return is approximately 4%. A 4% real return is the appropriate rate to use when thinking about what your savings will actually buy in the future.
Historical return figures reference Dimson, Marsh and Staunton's Triumph of the Optimists long-run equity return data and MSCI index historical performance. Compounding calculations use standard financial mathematics. Projections assume constant returns and do not account for taxes, fund charges, or sequence-of-returns risk. Past performance does not guarantee future results.
Researched and maintained by Iulian, founder of Flux Media Systems. General information, not professional advice — about this site & our sources →