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What is compound interest?

Compound interest means you earn interest on your interest, not just on your original deposit. Over time, this creates exponential growth - your money earns more and more each year as the base keeps growing. Albert Einstein reportedly called it the "eighth wonder of the world."

How does compound interest differ from simple interest?

Simple interest only applies to your original principal. Compound interest applies to your growing balance - principal plus all previously earned interest. For long-term investing, the difference is dramatic: a $10,000 investment at 10% for 30 years earns $30,000 in simple interest but over $164,000 compound.

Why is the S&P 500 preset at 10.5%?

The S&P 500 has delivered approximately 10–11% average annual return before inflation since 1957. This is a long-run historical average - individual years vary widely, from −37% (2008) to +32% (2013). Past performance does not guarantee future results.

How does monthly contribution frequency affect growth?

Contributing monthly instead of annually means each dollar starts compounding sooner. This "dollar-cost averaging" approach also reduces the impact of market volatility on large lump-sum investments. Even small monthly contributions add up dramatically over decades.

What is the Rule of 72?

The Rule of 72 is a quick mental shortcut: divide 72 by your annual interest rate to estimate how long it takes to double your money. At 7.2%, money doubles in ~10 years. At 10%, it doubles in ~7.2 years. This tool lets you see the full picture beyond just the doubling point.

Does this account for inflation?

No - the calculator shows nominal returns (before inflation). To estimate real (inflation-adjusted) returns, subtract the inflation rate from your interest rate. For example, at 10% return with 3% inflation, your real rate is approximately 7%. A conservative after-inflation long-term rate for equities is around 6–7%.

What about taxes and fees?

This visualizer does not include taxes or fund fees (expense ratios). In a tax-advantaged account (401k, IRA, Roth IRA), your full return compounds without annual tax drag. In taxable accounts, dividends and capital gains taxes reduce effective returns. Index funds typically have very low fees (0.03–0.20%), but actively managed funds can charge 1%+ annually.