How compound interest actually works
Compound interest is interest earned on top of interest you've already earned. Instead of only your original deposit growing, every dollar of past interest starts earning its own return too. Over a few years the effect is modest; over a few decades it's the single biggest force behind long-term wealth.
The opposite is simple interest, which only ever pays you on the original principal. On $10,000 at 7% for 10 years, simple interest hands you about $7,000 in total. Compound interest, growing on the full balance each year, pushes the same deposit close to $19,700 — and the gap only widens with time.
The Rule of 72. Want a quick mental shortcut? Divide 72 by your annual rate and you get the rough number of years for your money to double. At 6%, that's about 12 years. At 9%, about 8 years. No calculator required.
Does compounding frequency matter?
Daily, monthly, or annual compounding sounds like a big deal, but the difference is smaller than the marketing suggests. Take $10,000 at 5% for 10 years: compounded annually it grows to about $16,289, monthly to about $16,470, and daily to about $16,487. Daily beats monthly by roughly $17 over a decade.
The lesson: don't obsess over compounding frequency. A bank advertising "daily compounding" at a tiny rate is far worse than a high-yield account paying more, even if it only compounds monthly. Chase the higher APY first.
Realistic US rates to plug in
- Regular savings accounts at big banks pay very little — the national average sits well under half a percent.
- High-yield savings accounts (HYSAs) and CDs have recently paid in the rough range of 4–5% APY, though rates drift with the Federal Reserve.
- The US stock market (S&P 500) has historically returned about 10% a year before inflation — closer to 7% a year once you account for inflation. That 7% "real" figure is the more honest number for long-term planning.
Because rates move with the Fed, it's worth testing a couple of scenarios — a higher rate and a lower one — rather than betting everything on a single number.
Why the inflation-adjusted figure matters
A calculator quoted in plain future dollars always looks impressive, but $1,000,000 in 30 years will not buy what $1,000,000 buys today. Turning on the inflation adjustment shows your balance in today's purchasing power, which is the number that actually tells you how you'll live. Use it as a reality check on any long-term projection.
Frequently asked questions
How much do I need to invest to reach $1 million?
It depends entirely on your rate and time horizon. As a purely illustrative example — not a recommendation for your situation — at a 7% real return, contributing roughly $500–$650 a month for about 35 years could reach that range, with most of the final balance coming from growth rather than your own deposits. Plug your own numbers in above to see a projection, and treat it as an estimate only.
Is this calculator accurate for a Roth IRA or 401(k)?
Yes for the growth math. Set your expected return (often the ~7% real stock figure) and your monthly contribution. Inside a Roth IRA or Roth 401(k), qualified withdrawals are generally tax-free, so you can leave the tax toggle off; for a traditional pre-tax account, growth is tax-deferred until withdrawal. This tool gives an estimate, not tax advice.
What rate should I use?
For a savings goal, use your account's APY (often 4–5% for a HYSA recently). For long-term stock investing, the 7% inflation-adjusted figure is a common, reasonably conservative choice. There's no guaranteed rate — past returns don't promise future ones.
Does it store my numbers anywhere?
The calculator itself doesn't store your numbers or require an account — all the math runs in your browser, and your figures are never sent to our servers. The "copy link" button simply encodes your inputs into the web address so you can bookmark or share a scenario. Please note that this site shows third-party ads (Google AdSense), and those ad services may set cookies and collect data to display and measure ads. See our
Privacy Policy for details and your choices.
How is the tax estimate calculated?
When enabled, it applies your chosen rate to the total interest earned as a simple approximation. Real-world taxes depend on account type, holding period, and your bracket, so treat this as a ballpark, not a filing figure.
About the figures. Typical US savings, CD, and stock-market returns referenced here are drawn from widely reported public data including the Federal Reserve (interest rates), the FDIC (deposit insurance, up to $250,000 per depositor per institution), and long-run S&P 500 averages. Rates change frequently and individual results vary. This tool is for education only and is not financial, investment, or tax advice. Always consider risk before investing.