How compounding works
Each month, the balance earns interest at the annual rate divided by 12, and then your contribution is added. The interest from earlier months earns interest itself, which is why growth accelerates over long periods.
Example
Starting with $10,000, adding $300 per month at a 7% annual return for 20 years gives a balance of about $196,700, of which $82,000 is money you contributed and about $114,700 is interest.
Limits of the estimate
- Real returns vary year to year and are not guaranteed. This tool assumes a constant rate.
- Taxes, fees and inflation are not included. Inflation reduces what the future balance can buy.