Learn the stock market › Saving for the long term › Lesson 1 of 5
Compound interest
The formula
Future value = amount × (1 + return per year) ^ years.
With $10,000 at 6.3% a year, after one year you have $10,000 × 1.063. In the second year the same percentage applies to the new, larger amount, and so on. After 30 years it is $10,000 × 1.063^30 = $62,517.
If you invest an amount every month, each deposit grows the same way for the years it has. $500 a month for 30 years is $180,000 put in, and at 6.3% a year it becomes $514,445.
What the compounding adds
Without compounding, every year would add the same amount, 6.3% of $10,000. That is simple interest. The table splits the final value into what you put in, the simple interest and the rest, which is return on earlier returns.
| After | Value | Of which simple interest | Of which compound growth |
|---|---|---|---|
| 1 year | $10,630 | $630 | $0 |
| 5 years | $13,573 | $3,150 | $423 |
| 10 years | $18,422 | $6,300 | $2,122 |
| 20 years | $33,936 | $12,600 | $11,336 |
| 30 years | $62,517 | $18,900 | $33,617 |
| 40 years | $115,168 | $25,200 | $79,968 |
After 30 years the simple part is $18,900 and the compounding $33,617. The gap widens every year, which is why time matters more than the rate in the early years.
How long does it take to double your money?
At 6.3% a year it takes 11.3 years to double the amount. A common shortcut is the rule of 72: divide 72 by the rate, 72 / 6.3 = 11.4 years. It works well for rates between about 2 and 12 percent.
Try it yourself
Enter an amount today, an amount each month, the number of years and the return per year.
Enter a return per year.
The calculator uses the same percentage every year, as every compound interest calculator does. The market doesn't. How the same plan would have done through every real month since 1928 is in the dollar cost averaging calculator, and how much the years have varied is in the study of the stock market's average return.
What works against you
Compounding works both ways. A fee is also taken from earlier years' growth, so one percent a year becomes a large part of the final amount after thirty years; see What fees cost over 30 years. And inflation makes money buy less, which is in Inflation and your savings.
Test yourself
You have $10,000 growing 10% a year. How much do you have after two years?
How we calculated
- 6.3% a year is the S&P 500 from its last close of 1927 to Nov 6, 2026, without dividends, rounded to a tenth of a percent. With dividends it was more.
- A monthly amount goes in at the end of each month, and growth is applied each month at the same yearly pace.
- Taxes, fees and inflation are not taken out.