Why time matters more than anything
With compound interest, your money earns interest, and then that interest earns interest too. In the early years the effect is small and most of your balance is what you put in. Given enough time, the interest overtakes your contributions — which is why starting early matters more than starting big.
Worked example
Start with $10,000, add $500 a month, and earn 7% a year compounded monthly. After 30 years you've put in $190,000 of your own money, but the balance is about $691,000 — over $500,000 of it is interest.
Compare a single $10,000 deposit at 5% for 10 years with no further contributions: it grows to $16,289 with annual compounding, or $16,470 with monthly compounding. The difference between frequencies is real but small next to the effect of rate and time.
Where compound interest works for you — and against you
- For you: high-yield savings accounts, CDs, 401(k)s and IRAs, index funds with reinvested dividends.
- Against you: credit-card balances and other high-interest debt compound the same way. Paying off a 24% APR card is a guaranteed 24% return.
What this includes & its limits
- A constant rate every year, with contributions added at the end of each month.
- Does not account for taxes, fees, inflation or market ups and downs — real investment returns vary year to year.
- For illustration only; past or assumed returns are not a guarantee of future results.
Frequently asked questions
For education and planning only — not investment advice.