Project how savings may grow with deposits and compound returns.
Enter realistic assumptions, run the estimate, then test a higher and lower scenario. Small changes to rates, time, and payments can change the result significantly.
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It is the mechanism that makes long-term saving (and long-term debt) so powerful. Albert Einstein reportedly called it the "eighth wonder of the world" — though the quote is disputed, the math is not.
The key inputs to any compound interest calculation are: starting balance, regular contribution amount, annual return rate, and time. Of these, time is the most powerful variable. A 25-year-old who invests $200/month at 7% annual return will accumulate roughly $525,000 by age 65. A 35-year-old doing the same thing ends up with about $243,000 — less than half — despite only 10 fewer years of contributions. Those 10 years of early growth make an enormous difference.
The annual return rate you enter is an assumption, not a guarantee. Savings accounts compound at a fixed rate (whatever the current APY is). Investment accounts fluctuate — the 7% figure commonly used in retirement projections represents a historical average for diversified stock portfolios, adjusted for inflation, over long periods. Real returns will be higher some years and lower (or negative) in others.
This calculator uses monthly compounding, which is standard for savings accounts and investment return modeling. Some accounts compound daily, which produces slightly higher results. The difference is small but meaningful over long time horizons.