Compound Interest Calculator
Compound interest means interest earning interest. Growth becomes exponential, and the most powerful variable is not the rate but time. This simulator adds monthly deposits and makes the effect of the years visible.
How capitalisation works
With monthly deposits: monthly capitalisation at the equivalent of the annual rate
At 5% a year, capital doubles in a little under 15 years — the rule of 72: divide 72 by the rate for a quick estimate. At 2%, it takes about 36 years; at 8%, about 9.
Time dominates the rate
Over 10 years at 5%, €100,000 grows to about €163,000. Over 30 years, it passes €432,000. Doubling the duration multiplies far more than doubling the rate, because growth is exponential. That is why starting early with small amounts often beats a larger, later effort.
| Horizon | Effect |
|---|---|
| 5 years | Interest is still a minority share of the final capital. |
| 15 years | Interest approaches half of the final capital. |
| 30 years | Interest far exceeds the cumulated deposits. |
What can undo the effect
- Fees: 1% of annual fees can cut the final capital by 15–25% over 20 years, since they apply every year.
- Inflation: a 5% nominal return with 2% inflation is roughly a 2.9% real return.
- Taxation: gains are taxed depending on the wrapper (pension account, brokerage, tax-sheltered plans), reducing the net return.
- Volatility: an average 5% return is not 5% every year. Negative years slow compounding down.
The simulator assumes a constant return and monthly capitalisation at the equivalent annual rate: an approximation meant to illustrate a dynamic, not a contractual projection.
FAQ
What is the difference between simple and compound interest?
Simple interest is always computed on the initial capital. Compound interest is added to the capital and earns interest in turn, accelerating growth over time.
What is the rule of 72?
It estimates the doubling time of capital by dividing 72 by the annual rate. At 6%, about 12 years; at 3%, about 24. The approximation holds for moderate rates.
Should inflation be accounted for?
Yes, to reason in purchasing power. With 2% inflation, a 5% nominal return is about a 2.9% real return.
Do fees really change the outcome?
Considerably: they apply every year to the accumulated capital. A 1-point annual fee gap can cut the final capital by 15–25% over twenty years.