The Eighth Wonder of the World
Albert Einstein famously called compound interest the "eighth wonder of the world." Unlike simple interest, where you only earn on your initial deposit, compound interest allows you to earn interest on the interest you've already accumulated.
Over long periods (10, 20, 30 years), this creates an exponential growth curve—often called a "hockey stick" chart—which is the primary engine of wealth creation for investors.
💡 The Rule of 72
Want a quick estimate? Divide 72 by your annual interest rate to see how many years it takes to DOUBLE your money.
Example: At 8% returns, 72 ÷ 8 = 9 years to double your capital.
How to Use This Tool
- Initial Deposit: The amount you have saved right now.
- Monthly Contribution: How much you add to your savings each month. Increasing this by even $50 can have a massive long-term impact.
- Interest Rate: The expected annual return. The S&P 500 historically returns about 10% (avg) before inflation. High-Yield Savings Accounts (HYSA) differ significantly (check our HYSA Guide).
- Growth Period: The number of years you plan to let the money grow.
Benefits of Compounding Frequency
This calculator assumes Monthly Compounding, which is standard for most savings accounts and investment projections. The more frequently interest compounds (daily vs yearly), the faster your money grows.
Realistic Rate Expectations (2025)
- High-Yield Savings Accounts: 3.5% - 4.5%
- Stock Market (S&P 500): 7% - 10% (Average historical annual return)
- Real Estate: 4% - 8% (Varies heavily by market)
- Inflation: -2% to -3% (Remember, inflation eats into your purchasing power!)
Frequently Asked Questions (FAQ)
Does this calculator account for inflation?
No, this calculator shows the "nominal" value of your future money. To understand purchasing power, subtract the inflation rate (~3%) from your Interest Rate input (e.g., enter 5% instead of 8%).
How can I maximize compound interest?
Time is your best friend. Starting 5 years earlier can often result in double the final amount, even if you contribute less overall. This is why financial advisors urge young people to start investing immediately.