Interest on the interest.
What a starting balance and a monthly habit become at a given rate, and how much of that is growth.
Compounded monthly, with contributions added at the end of each month.
| Starting amount | $5,000 |
| Total contributed | $96,000 |
| Investment growth | $100,367 |
| Ending balance | $201,367 |
| Growth as share of balance | 49.84% |
A constant rate is a modelling convenience, not a forecast. Investment returns vary year to year, and inflation reduces the purchasing power of the final figure.
Why the last decade does most of the work
Compound interest pays you on your principal and then on the interest that principal has already earned. The consequence is that growth is not a straight line but a curve that steepens: in a twenty-year projection, the final five years typically add more than the first ten. This is the whole argument for starting early, and it is why a delay of a few years costs far more than the contributions missed.
Compounding frequency matters less than people expect — monthly versus annual compounding changes the outcome slightly. What moves the result is the rate, the term, and above all the monthly contribution. A steady habit of a few hundred dollars a month outperforms a larger one-off deposit over any long horizon, because every contribution starts its own compounding clock.
Two forces work in the other direction. Fees compound exactly as returns do: a 1% annual fee on a portfolio held for thirty years can consume a fifth of the final balance. And inflation erodes what the number buys — a balance projected at 6% nominal in a 2.5% inflation world is growing at about 3.5% in real terms. Running the projection at your expected return minus expected inflation gives you the figure in today’s money.
The same mathematics governs debt, which is worth remembering when comparing a savings plan with paying down a balance. Credit card interest compounds against you at rates no savings account will match, so clearing it is usually the highest-return use of the next dollar.
Common questions
What rate should I use?
For cash savings, the rate your account actually pays. For long-term investing, 5–7% is a common assumption for a diversified portfolio; test the range rather than trusting one figure.
Should I account for inflation?
Yes, if you want the answer in today’s purchasing power. Subtract expected inflation — around 2–3% — from your return and read the result as real money.
Does compounding frequency change much?
Only slightly at these rates. Daily versus monthly compounding is a rounding difference next to the effect of contributions and term.
Sources & method
Balances are compounded monthly at the annual rate entered, divided by twelve, with contributions added at the end of each month.
Growth is the ending balance less the starting amount and all contributions made.
Fees, taxes on interest and inflation are not deducted.
The Index
Every calculator is built the same way: real 2026 figures, method printed at the foot of the page.