How compound interest works
Compound interest means your interest earns interest. Each period, the interest you've already earned gets added to your principal, and the next period's interest is calculated on that larger amount. Over time, this creates exponential growth — which is why starting early matters so much more than contributing a large amount later.
Monthly contributions make a big difference
Adding even a small monthly contribution dramatically increases your final balance. For example, $10,000 at 7% for 20 years grows to about $38,700. But add $200/month and that becomes over $144,000 — nearly four times as much. Consistent contributions are the second most powerful lever after time.
Compounding frequency
The more frequently interest compounds, the faster your money grows. Daily compounding produces slightly more than monthly, which produces more than annual. In practice, the difference between daily and monthly compounding is small, but it compounds (pun intended) into a meaningful amount over decades. Most savings accounts compound daily.
Use this to plan your savings
Use this calculator alongside our savings goal calculator to plan how much you need to save each month to hit a target. For long-term investing, see our investment return calculator.