Compound Interest Calculator

Why most of the total is growth

The split above is the point of this calculator. Over a long enough period the returns exceed everything you paid in, often by a wide margin — and the crossover comes later than people expect, which is why so many give up before it.

For the first several years contributions dominate and progress looks linear and slow. The curve only bends once the balance is large enough that a year's return exceeds a year's contributions. Nothing changes at that moment except that the arithmetic starts working for you rather than alongside you.

Time beats amount, and it is not close

Years enter the calculation as an exponent; the contribution does not. That asymmetry is why money invested at 25 with forty years to run typically ends up worth several times the same money invested at 45 with twenty — despite being the identical sum.

The practical consequence is that starting small now beats waiting until you can start properly. The years you spend waiting are the most valuable ones in the whole calculation, because they are the ones compounding on top of everything else.

Real returns, not nominal ones

A projection at a nominal rate produces a large and flattering figure that buys considerably less than it appears to. If you want an answer in today's money — which is what you want for a goal like retirement or a house — use an inflation-adjusted rate. Historically that has meant something in the region of 5–7% for a portfolio weighted towards equities, against a nominal 8–10%.

Fees deserve the same treatment, because they compound too. A percentage point of annual charges does not cost you a percentage point; over thirty years it can remove a fifth or more of the final balance. It is the input people examine least and one of the few they fully control.

What a smooth curve hides

Real returns arrive unevenly — good years, flat years and sharp falls — so treat the output as a central estimate rather than a forecast. The average may hold over decades while any particular decade misses it badly.

That matters most near the end. A fall five years before you need the money is far more damaging than the same fall twenty-five years out, which is the argument for reducing risk as a target approaches rather than at a fixed age. Past returns are not a guarantee of future ones, so it is worth running a lower rate as well and seeing what still works.