What Is Compound Interest?
Compound interest means you earn interest on your original principal and on the interest already earned. This creates exponential growth — a concept Einstein reportedly called "the eighth wonder of the world."
At 7% annual return, $10,000 becomes $76,000 in 30 years — without any additional contributions. Add $500 monthly and that becomes over $600,000.
How Often Should Interest Compound?
The more frequently interest compounds, the more you earn. Daily compounding slightly outperforms monthly, which outperforms annual. Most savings accounts and investments compound monthly or daily.
The difference between monthly and annual compounding on a $100,000 investment at 7% over 30 years is about $12,000 — real money worth optimizing for.
What Return Rate Should I Use?
The S&P 500 has historically returned ~10% annually (nominal) or ~7% inflation-adjusted over long periods. Bond-heavy portfolios average 4–5%. Conservative estimates use 6–7% to account for fees and market variance.
Use our inflation adjustment field to see what your future balance will be worth in today's dollars — the "real" purchasing power of your savings.
The Power of Starting Early
Someone who invests $300/month from age 25 to 65 at 7% accumulates ~$800,000. Someone who starts at 35 with the same contributions reaches only ~$380,000 — less than half, despite only 10 fewer years.
This gap is entirely due to compounding. The earlier dollars have more time to compound, making youth the single biggest financial advantage anyone can have.