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Compound interest is interest calculated on both your original principal and on the interest already accumulated in prior periods — in other words, your returns start earning their own returns. Albert Einstein is often (apocryphally) credited with calling it the most powerful force in finance; whether or not he said it, the math is real: the same monthly contribution produces dramatically more wealth the earlier it starts.

How it's calculated

The core formula for a lump sum is A = P(1 + r/n)^(nt), where P is principal, r is the annual rate, n is the number of compounding periods per year, and t is years. For a recurring monthly contribution, the future value uses the annuity formula: FV = PMT × [((1 + r/12)^(12t) − 1) / (r/12)], plus the lump-sum growth of any starting balance. This calculator runs that math for you across your chosen contribution, rate, and horizon.

A worked example

Invest $10,000 today plus $500/month for 25 years at a 7% average annual return: the starting $10,000 alone grows to roughly $54,000, and the monthly contributions add roughly $380,000 more — a total of about $434,000 from $160,000 of contributions, meaning compounding generated more than the money you put in.

Why it matters

The gap between starting at 25 versus starting at 35 is not linear — it's exponential, because the earlier dollars have more compounding periods left. Ten years' head start on identical contributions and returns can mean a meaningfully larger ending balance purely from time, which is why "start now, even small" consistently beats "wait until I can invest more."

Common pitfalls

Real returns are never a smooth constant line — markets have volatile years, and sequencing matters more once you're withdrawing (see the drawdown calculator). This tool also doesn't account for taxes on gains outside tax-advantaged accounts, or investment fees, which compound negatively in exactly the same way gains compound positively.