Question 1

How does compound interest work?

Accepted Answer

Compound interest is interest earned on both your original principal and on previously accumulated interest. Unlike simple interest, which only grows based on the initial amount, compound interest accelerates over time because each period's interest becomes part of the base for the next calculation. This is why investment growth curves upward exponentially over long time horizons.

Question 2

What is the difference between compound interest and simple interest?

Accepted Answer

Simple interest is calculated only on the original principal — for example, $10,000 at 5% simple interest earns exactly $500 every year. Compound interest is calculated on the principal plus all previously earned interest, so the amount earned grows each period. Over 30 years, $10,000 at 5% simple interest totals $25,000, while the same amount compounded annually reaches about $43,219.

Question 3

How much will $10,000 grow in 20 years?

Accepted Answer

It depends on the rate of return. At 7% compounded annually (a common long-term stock market assumption after inflation), $10,000 grows to approximately $38,697 in 20 years with no additional contributions. Adding $500 per month at the same rate brings the total to roughly $284,000. Use the calculator above to model your specific scenario.

Question 4

Does compounding frequency matter?

Accepted Answer

Yes, but less than most people expect. Compounding monthly instead of annually on a $10,000 investment at 7% over 30 years adds about $1,500 — meaningful but modest compared to the impact of a higher return rate, larger contributions, or a longer time horizon. Daily compounding adds even less beyond monthly. The Full Analysis tab lets you compare frequencies directly.

Question 5

What rate of return should I use for retirement planning?

Accepted Answer

A common convention is 7% for a diversified stock portfolio, which reflects the historical S&P 500 average of roughly 10% minus about 3% for inflation. For a balanced stock-and-bond portfolio, 5–6% is more conservative. For savings accounts or CDs, use current rates (typically 4–5% in a high-rate environment). Always use the inflation-adjusted (real) return if you want results in today's purchasing power.

Year	Balance	Contributed	Interest	Today’s $
1	$16,955	$16,000	$955	$16,461
2	$24,413	$22,000	$2,413	$23,012
3	$32,411	$28,000	$4,411	$29,660
4	$40,986	$34,000	$6,986	$36,416
5	$50,182	$40,000	$10,182	$43,287
6	$60,042	$46,000	$14,042	$50,284
7	$70,614	$52,000	$18,614	$57,416
8	$81,952	$58,000	$23,952	$64,693
9	$94,108	$64,000	$30,108	$72,126
10	$107,144	$70,000	$37,144	$79,725
11	$121,122	$76,000	$45,122	$87,501
12	$136,110	$82,000	$54,110	$95,465
13	$152,182	$88,000	$64,182	$103,628
14	$169,416	$94,000	$75,416	$112,004
15	$187,895	$100,000	$87,895	$120,603
16	$207,710	$106,000	$101,710	$129,438
17	$228,958	$112,000	$116,958	$138,524
18	$251,742	$118,000	$133,742	$147,872
19	$276,173	$124,000	$152,173	$157,498
20	$302,370	$130,000	$172,370	$167,415
21	$330,461	$136,000	$194,461	$177,639
22	$360,582	$142,000	$218,582	$188,185
23	$392,881	$148,000	$244,881	$199,070
24	$427,515	$154,000	$273,515	$210,309
25	$464,653	$160,000	$304,653	$221,921
26	$504,475	$166,000	$338,475	$233,922
27	$547,176	$172,000	$375,176	$246,333
28	$592,964	$178,000	$414,964	$259,171
29	$642,062	$184,000	$458,062	$272,457
30	$694,709	$190,000	$504,709	$286,211

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