Compound Interest Explained:Make Your Money Work While You Sleep

$524,963
account balance after 40 years

Fixed hypothetical example: $0 to start, then $200 at each month-end for 40 years at an assumed 7% nominal annual rate, compounded monthly. No inflation, fees or taxes.

$96,000total you put in over 40 years
$10,617growth earned by year 10
$428,963growth earned by year 40

The Magic of Compound Interest

Monthly contributions and compound growth over 40 yearsFixed example at year 40: $96,000 contributed + $428,963 growth = $524,963 balance. Chart selection changes the legend, not this fixed example.$0$100k$200k$300k$400k$500k0510152025303540Years$524k
Hover or tap the chart to see any year.
Your balance (year 40):$524,963Growth earned:$428,963Money you put in:$96,000
You put in+Growth=Balance

Income you withdraw is separate. Growth stays invested unless you take it out.

For simplicity, this page ignores inflation. Just know that $524k 40 years in the future is worth less than $524k in today's dollars. It's still a lot, but less.

Fixed example at year 40: $96,000 contributed + $428,963 growth = $524,963 balance. Chart selection changes the legend, not this fixed example.

What is compound interest?

Compound interest is interest calculated on both your original money and previously accumulated interest. Your money can compound while it stays in the account; growth earned is separate from income you withdraw. [1]

Savings interest compounds when it stays in the account. Investments can also experience compound growth through reinvested returns, but share prices and dividends fluctuate. An assumed investment return is not a promised interest payment. [3]

Simple vs. compound interest

Simple versus compound interest over 30 yearsFixed example at year 30: $31,000 with simple interest versus $76,123 with annual compounding, from the same $10,000 starting amount and assumed 7% annual rate.$0$20k$40k$60k051015202530Years
Hover or tap the chart to compare any year.
Simple interestYour $10,000 (unchanged)Compound interestThe compounding effect
Fixed example at year 30: $31,000 with simple interest versus $76,123 with annual compounding, from the same $10,000 starting amount and assumed 7% annual rate.

Fixed hypothetical example: $10,000 at an assumed 7% annual rate, over 30 years, with no additional contributions, inflation, fees or taxes. Simple interest only pays on what you put in. Compound interest pays on your interest too. To keep the idea simple, interest is added once a year here and in the snowball and step-by-step examples below.

The snowball effect

See how a $10,000 balance grows on its own from compound interest, without any additional contributions

Deposit, interest and interest on interest over 10 yearsFixed example at year 10: $10,000 contributed + $7,000 interest on the original deposit + $2,672 interest on interest = $19,672 balance.$0$5k$10k$15k$20kYr 1Yr 2Yr 3Yr 4Yr 5Yr 6Yr 7Yr 8Yr 9Yr 10
Hover or tap a bar to see the breakdown in the legend.
Year 10Your contribution:$10,000Interest on your deposit:$7,000Interest on interest:$2,672Total:$19,672
Fixed example at year 10: $10,000 contributed + $7,000 interest on the original deposit + $2,672 interest on interest = $19,672 balance.

At an assumed 7% annual rate compounded once a year, with no additional contributions, inflation, fees or taxes, each year's interest adds to your balance, earning interest, so you could earn even more interest next year without adding another dollar.
The snowball grows faster as the years roll.

Interest on interest, step by step

Year 1Balance, beginning of year:$10,000Interest earned: +$700, all on your deposit
End of year: $10,700
Interest on your depositInterest on interest
Year 2Balance, beginning of year:$10,700Interest earned: +$749 = $700 on your deposit + $49 on interest
End of year: $11,449
Year 3Balance, beginning of year:$11,449Interest earned: +$801.43 = $700 on your deposit + $101.43 on interest
End of year: $12,250.43

Fixed hypothetical example: $10,000 at an assumed 7% compounded annually, without additional contributions, inflation, fees or taxes. Each bar is that year's interest, drawn to the same scale. The wavy edge means the scale keeps going. The $700 on your deposit never changes. The darker green, interest on interest, grows every year. Add up these yearly amounts and you get the interest shown in the snowball bars above.

Hover or tap a green bar to highlight the matching amount above it.

Start early vs. later

With compound interest, time is your best friend.

Early starter vs. late starter: age 25 vs. age 35

Starting at age 25 versus age 35Fixed example at age 65: starting at 25 produces $524,963 from $96,000 contributed; starting at 35 produces $243,994 from $72,000 contributed. Both assume $200 at month-end and a 7% nominal annual rate compounded monthly.$0$100k$200k$300k$400k$500k253035404550556065AgePerson starting at 35begins here
Hover or tap the chart to see the amounts at any age.
Age 65Start at 25:$524,963Start at 35:$243,994
Fixed example at age 65: starting at 25 produces $524,963 from $96,000 contributed; starting at 35 produces $243,994 from $72,000 contributed. Both assume $200 at month-end and a 7% nominal annual rate compounded monthly.

Fixed hypothetical example: each starts with $0 and saves $200 at each month-end until age 65, at an assumed 7% nominal annual rate compounded monthly. Starting ages differ; inflation, fees and taxes are excluded.

What if the early saver stops after 10 years? Person A and Person B each start with $0 and save $200 at month-end at an assumed 7% nominal annual rate compounded monthly (no inflation, fees or taxes), and both charts use the same scale so you can compare them directly. Person A puts in $24,000 and Person B puts in $72,000, yet Person A ends up with more. In this fixed-return example, the earlier saver finishes with more despite contributing less.

Person A: invests $200 a month from age 25 to 35, then stops

Person B: invests $200 a month from age 35 to 65

Person A saves for 10 years, then stops contributionsAt age 65, Person A has $280,968 from $24,000 contributed at an assumed 7% nominal annual rate compounded monthly.$0$100k$200kContributions stop at 35($24,000 put in) Person B saves for 30 years starting at age 35Fixed example at age 65: Person A has $280,968 after contributing $24,000 between ages 25 and 35; Person B has $243,994 after contributing $72,000 between ages 35 and 65. Both assume a 7% nominal annual rate compounded monthly.$0$100k$200k253035404550556065AgeStarts investing at 35
At age 65Person APerson B
Money put in$24,000$72,000
Growth$256,968$171,994
Balance$280,968$243,994
Fixed example at age 65: Person A has $280,968 after contributing $24,000 between ages 25 and 35; Person B has $243,994 after contributing $72,000 between ages 35 and 65. Both assume a 7% nominal annual rate compounded monthly.

The Rule of 72: a quick doubling shortcut

Divide 72 by the interest rate to estimate how many years it takes money to double.

Assumed returnRuleDoubles in
4%72 ÷ 4about 18
7%72 ÷ 7about 10
10%72 ÷ 10about 7

Hypothetical examples with assumed rates. A higher rate makes each doubling come sooner, and more time gives you more doublings. At 7%, $10,000 would take about 10 years to reach $20,000, and about 10 more to reach $40,000.

Compound Interest Calculator

Adjust the controls to update this calculator only. The examples elsewhere on this page keep their stated assumptions.

A fixed nominal rate compounded monthly, not APY or a forecast. How it works
Final balance$325,159
You put in$82,000
Growth earned$243,159
Illustrative annual amount at the nominal rate, before fees or taxes (not guaranteed)$22,761
Compound interest calculator: current scenarioCurrent calculator scenario: $10,000 to start + $200 at each month-end for 30 years, at a 7% nominal annual rate compounded monthly. Final balance: $325,159; contributions: $82,000; growth: $243,159. No inflation, fees or taxes.$0$100k$200k$300k051015202530Years
Current calculator scenario: $10,000 to start + $200 at each month-end for 30 years, at a 7% nominal annual rate compounded monthly. Final balance: $325,159; contributions: $82,000; growth: $243,159. No inflation, fees or taxes.
Hover or tap the chart to see any year.
Your balanceTotal you put in

For general educational purposes only. Results are estimates based on your inputs and simplified assumptions (a fixed assumed return, monthly compounding, month-end contributions, no fees or taxes), not financial, investment, tax or legal advice. Returns and dividends are not guaranteed, and investing involves risk, including loss of some or all of what you invest. Full disclaimer

How this calculator works

Each month: new balance = previous balance × (1 + nominal annual rate ÷ 12) + monthly contribution. Enter the rate as a percentage; the calculation converts it to a decimal (7% = 0.07). Contributions are added at month-end.

The rate stays fixed, growth remains invested, and results exclude inflation, fees and taxes. This is a simplified compound-growth illustration, not a forecast of investment performance. Whole-year periods from 1 to 50 years are supported; results are rounded to the nearest dollar.

The input is a nominal annual rate, not APY (the effective annual rate including compounding). At a nominal 7%, monthly compounding gives an effective annual rate of approximately 7.229%, using (1 + 0.07 ÷ 12)12 − 1. Entering 7% APY as 7% here would overstate growth.

The annual amount shown is final balance × nominal annual rate. It is a simple hypothetical annual amount without further compounding or withdrawals modeled, not a sustainable withdrawal rate or guaranteed income.

The hero and age-comparison charts use the same monthly model; the simple-interest, snowball and step-by-step examples use annual calculations. Each fixed example states its own assumptions. Calculations are this site's own illustrations. Calculation concepts: [2]

Common questions

What does passive income mean?

Passive income typically requires little ongoing work, although setup, capital, monitoring and risk may still be involved. Examples include interest and dividends; they can be paid out or reinvested. For example:

  • A savings account may earn interest, which can stay in the account or be withdrawn.
  • A dividend-paying stock may distribute cash on its payment schedule; payments can change or stop.

Interest and dividends are not guaranteed, and investments can lose value.

How often does interest compound?

It depends on the account or loan, so check its terms. The most common frequencies are:

  • Annually: once a year.
  • Quarterly: 4 times a year.
  • Monthly: 12 times a year, often used for savings accounts and loans.
  • Daily: 365 times a year, often used for high-yield savings accounts and credit cards.

More frequent compounding earns slightly more, but the difference is small. In a hypothetical example, $10,000 at an assumed 5% for 10 years grows to $16,289 compounded annually, $16,436 quarterly, $16,470 monthly and $16,487 daily. Rate and time matter far more. (The hero chart, start early vs. later and calculator on this page compound monthly. The other examples use once-a-year compounding to keep things simple.)

What is inflation, and how does it affect these numbers?

Inflation is the rise in prices over time, so the same dollar buys less in the future. The examples on this page are not adjusted for inflation. For example, if prices rose an assumed 2.5% a year, $524,963 in 40 years would buy about what $195,000 buys today.

What is a dividend reinvestment plan (DRIP)?

A dividend reinvestment plan (DRIP) uses dividends to buy additional shares. Those shares may generate future dividends, which can support compound growth. Dividend payments and share values can change; dividends can be reduced or stopped. [3]

What is the compound-interest formula?

Without additional contributions, the formula is A = P(1 + r/n)nt. A is the final balance; P is the starting amount; r is the nominal annual interest rate as a decimal; n is the number of compounding periods per year; t is time in years. For example, $10,000 at 7% compounded annually for 30 years gives $10,000 × (1.07)30 ≈ $76,123. This assumes a fixed rate with no inflation, fees or taxes.

This version does not include deposits after the starting amount. The calculator above adds month-end contributions using the monthly calculation in How this calculator works.

Is compound interest the same as compound growth?

Compound interest refers to interest building on principal and earlier interest. Compound growth is broader: it can include investment gains and reinvested dividends. Stock returns are variable and can be negative; they are not fixed interest payments. [1] [3]

How much could $200 a month grow to in 40 years?

In the fixed hero example, starting with $0 and adding $200 at each month-end for 40 years at a 7% nominal annual rate compounded monthly produces approximately $524,963: $96,000 contributed and $428,963 growth. This hypothetical calculation excludes inflation, fees and taxes and assumes a constant rate. It is not a prediction. Changing the calculator does not change this fixed example.

Does this calculator include inflation, taxes or fees?

No. The calculator and fixed examples show nominal dollar amounts before inflation, taxes or fees. Those factors can reduce purchasing power or the amount you keep. Results assume a fixed nominal annual rate, monthly compounding and month-end contributions; actual investment returns can vary or be negative.

Sources & calculation notes

Content reviewed:

Definitions and investing concepts are supported by the resources below from the U.S. Securities and Exchange Commission's Investor.gov. Numerical examples and charts are this site's own calculations using the stated assumptions, not figures quoted from these sources. Dollar amounts are illustrative and rounded; the math is the same for any currency when inputs use one consistent currency.

  1. Investor.gov: Compound Interest — definition of interest accumulating on principal and previous interest.
  2. Investor.gov: Compound Interest Calculator — starting amount, ongoing contributions, estimated rate and compounding frequency. This page's own calculator uses the monthly model explained above.
  3. Investor.gov: Stocks — dividends, dividend reinvestment plans, fees and stock-investment risks.