Compound Interest Calculator

What is Compound Interest?

Compound interest is when you earn interest on both your initial investment and on the interest that has already been added — effectively earning interest on your interest.

How this calculator works

This calculator applies the compound interest formula with regular contributions. You choose the compounding frequency (daily, monthly, quarterly, or annually) which determines how often earned interest is added to the balance and starts earning its own interest. More frequent compounding means slightly higher returns. The stacked area chart shows the split between your total deposits and the interest earned, making the power of compounding visually clear — especially over longer time periods. Quick presets cover popular Australian ETF historical returns (VAS 8.5%, VGS 9.5%, VDHG 8.0%) plus high-interest savings (4.5%) and term deposits (3.0%).

Why Compound Interest Is Powerful

Earning interest on interest creates exponential growth. $10,000 at 7% compounding annually: after 10 yrs $19,672 (96% gain), after 20 yrs $38,697 (287% gain), after 30 yrs $76,123 (661% gain). Einstein (apocryphally) called compound interest 'the most powerful force in the universe'. The longer your time horizon, the more dramatic the growth — the first 10 years feel slow, but years 20-30 add hundreds of thousands.

The Rule of 72 — Quick Estimation

Divide 72 by your annual return rate to estimate doubling time. At 6% return, doubles in 12 yrs. At 8%, 9 yrs. At 10%, 7.2 yrs. Useful mental shortcut: at 7-8% (typical balanced super or ETF return), your money roughly doubles every decade. Inverse: divide 72 by years to find required return — to double in 5 yrs, need 14.4% return (very aggressive).

Compounding Frequency Effects

More frequent compounding = slightly higher returns. $10,000 at 7% over 10 yrs: annual compound = $19,672; monthly = $20,096; daily = $20,138. The gap widens with higher rates and longer periods. Most Australian high-interest savings accounts and term deposits compound daily; super funds compound continuously; ETFs effectively compound when you reinvest dividends.

Dollar-Cost Averaging (DCA) Maths

Regular monthly contributions on top of a starting balance dramatically amplify growth. $10,000 starting + $500/mo at 7% over 30 yrs = $722,000. The contributions total $190k; the rest ($532k) is compound interest. Most Australians don't have $100k lump sums but CAN do $500-$1,000/mo regularly — and DCA produces extraordinary results given time.

Nominal vs Real Returns

NOMINAL return = your actual gain in dollars. REAL return = nominal minus inflation. If you earn 7% but inflation is 3%, your real return (purchasing power gain) is only ~3.9% (using the Fisher equation, not 4%). Always think in real terms for long-term goals. ASX 200 long-run real return ~6-7%/yr; balanced super real return ~4-5%/yr; high-interest savings real return often NEGATIVE in high-inflation periods.

Compounding in Australian Context

Compulsory super (12% SG) is the largest compound-interest engine for most Australians — most people will accumulate $500k-$1M+ in super by retirement from just SG. Personal contributions on top (salary sacrifice + extras) multiply that. Outside super: ETFs (VAS, VGS, VDHG), high-interest savings, term deposits, dividend reinvestment plans (DRPs) on shares. All benefit from time + consistency more than from picking the 'perfect' return rate.

All calculations are performed in your browser — your data never leaves your device. Results are for general guidance only and should not be considered professional financial advice.

Built and maintained by Konstantin Iakovlev. Data sourced from the ATO and official Australian government sources.