Compound interest
simulator
Project your long-term capital growth. With periodic contributions, tax withholding and interactive charts.
Visual evolution of your investment
Interactive charts to understand the growth of your capital
Capital growth year by year
Contributed capital vs interest generated vs total capital
Capital breakdown
What portion comes from contributions and what from interest
Conservative, medium and optimistic scenarios
Compare results under different return assumptions
Impact of starting early
Difference between starting today, in 5 years, or in 10 years
Rule of 72: time to double your money
Years needed to double your capital at different annual returns
Nominal capital vs real capital (inflation-adjusted)
The real purchasing power of your money over time
Year-by-year evolution table
| Year | Starting capital | Contributions | Interest | Commissions | Ending capital | Real capital |
|---|---|---|---|---|---|---|
| Calculate first to see the year-by-year table | ||||||
What is compound interest?
Compound interest is one of the most powerful concepts in personal finance. Unlike simple interest, where interest is always calculated on the initial capital, compound interest calculates interest on the accumulated capital — that is, on the initial capital plus the interest already generated.
The result is exponential growth rather than linear. The longer you let your money grow, the faster it grows, because interest generates new interest. This phenomenon is known as the snowball effect.
Albert Einstein supposedly described compound interest as "the eighth wonder of the world." Whether the quote is authentic or not, the concept is undeniably powerful for anyone interested in building long-term wealth.
The compound interest formula
The basic compound interest formula is:
- CF = Final capital
- CI = Initial capital (starting investment)
- r = Return per period (e.g., 0.07 for 7% annual)
- n = Number of periods (years, months, etc.)
When there are periodic contributions, the formula extends by adding the future value of an annuity:
- PMT = Contribution per period
- t = 1 if contribution is at the beginning of the period, 0 if at the end
When the frequency is monthly, the annual return is converted to monthly: r_monthly = (1 + r_annual)^(1/12) − 1
Compound interest example with monthly contributions
By contributing just €200/month for 25 years at a 7% return, compound interest far exceeds the total contributed. This illustrates the power of compound interest over the long term.
Why is time so important?
Time is by far the most important factor in compound interest. Not because of the math itself, but because of a property of the exponential function: growth accelerates as time passes.
Imagine three people investing €200/month at a 7% annual return until age 65:
- Ana starts at age 25 (40 years investing): estimated capital of ~€495,000
- Bernardo starts at age 35 (30 years investing): estimated capital of ~€234,000
- Carmen starts at age 45 (20 years investing): estimated capital of ~€105,000
Ana contributes twice as much as Carmen, but gets five times more capital. Those ten extra years have a huge impact. The best time to start investing is as soon as possible.
Compound interest in index funds
Index funds are one of the most popular vehicles for leveraging compound interest over the long term. They replicate the behavior of a stock market index (such as the S&P 500 or MSCI World) and automatically reinvest dividends and profits.
Their low fees (often below 0.2% annually) allow the compounding effect to work with almost no friction. This calculator lets you simulate exactly how much impact commissions have on your final result: enter different values in the "Annual commissions" field and check for yourself.
Past returns of stock market indices do not guarantee future returns. Diversify and adapt your strategy to your risk profile.
Compound interest in ETFs
ETFs (Exchange Traded Funds) are similar to index funds but trade on the stock exchange like shares. There are two types relevant to compound interest:
- Accumulation ETFs: automatically reinvest dividends within the fund. The compounding effect works without investor intervention. Tax-advantaged in many jurisdictions.
- Distribution ETFs: distribute dividends periodically. To benefit from compound interest, they must be manually reinvested, and will be taxed as capital income when received.
This calculator assumes full reinvestment of returns, which is the scenario that maximizes the compounding effect.
Compound interest in stocks
Investing in individual stocks can also benefit from compound interest, especially through dividend reinvestment. Companies with decades of growing dividend history (known as dividend aristocrats) can provide an income source that, when reinvested, amplifies the compounding effect.
However, concentrating in few stocks implies greater risk than index diversification. The buy and hold strategy — buying and holding without selling during market downturns — is fundamental to benefiting from compound interest in stocks.
Compound interest and inflation
Compound interest acts on nominal capital, i.e., the numerical value of your money. But inflation erodes the purchasing power of that money over time.
For example, €200,000 in 25 years, with an average inflation of 2%, is equivalent to about €123,000 in today's purchasing power. This calculator shows both values: nominal capital and real capital adjusted for inflation, so you can have an honest picture of your future situation.
The way to fight inflation is precisely to invest: if your return exceeds inflation, your real wealth grows. If not, your purchasing power decreases even though your euro balance increases.
Compound interest and taxes
Taxes on capital gains can significantly reduce the final result of your investment. In Spain, capital gains are taxed as savings income under the IRPF:
- 19% for the first €6,000
- 21% between €6,000 and €50,000
- 23% between €50,000 and €200,000
- 27% between €200,000 and €300,000
- 28% above €300,000
One advantage of index funds in Spain is tax-free switching: you can move money between funds without paying taxes until the final redemption, maximizing the compounding effect throughout the investment life.
Tax treatment depends on your personal situation, the financial product, and applicable legislation. Consult a tax advisor for your specific case.
Common mistakes when using a compound interest calculator
- Using overly optimistic returns. 15% or 20% annual returns are exceptional, not the norm. Always test with conservative scenarios.
- Ignoring inflation. A high nominal capital may hide a modest real return. Always enable inflation adjustment to see the real result.
- Ignoring commissions. A 1% difference in fees can cost tens of thousands of euros over 30 years. Check the impact in the calculator.
- Not accounting for taxes. The nominal capital before taxes is not what you will receive when you redeem your investment.
- Expecting linear growth. Compound growth is exponential: there are years with negative returns and extraordinary years. The historical average only materializes over long periods.
- Selling during market downturns. Panic-selling in a correction turns paper losses into real losses and breaks the compounding effect.
- Not reviewing contributions periodically. If your income grows, increasing contributions has a huge impact on the final result.
Frequently asked questions about compound interest
Compound interest is the process by which the interest generated by an investment is reinvested to generate more interest. Unlike simple interest, where you always calculate interest on the initial capital, with compound interest you calculate interest on the total accumulated capital, including previous interest. This produces exponential growth that accelerates over time.
The basic formula is: Final capital = Initial capital × (1 + r)^n, where r is the return per period and n is the number of periods. With periodic contributions, the future value of those contributions is added: PMT × ((1 + r)^n − 1) / r. If contributions are monthly, the annual return is first converted to monthly.
With simple interest, interest is always calculated on the initial capital. If you invest €10,000 at 7% for 10 years, you earn €7,000 (€700/year). With compound interest, interest is calculated on the accumulated capital, including previous interest. In the same example, you would earn ~€9,672 — nearly 38% more. The difference is enormous over 20 or 30 years.
Yes. Accumulation index funds automatically reinvest all returns, reproducing exactly the compound interest effect. Enter a reasonable estimated annual return for your fund (e.g., 7–9% for a long-term globally diversified index) and add the fund's fees (TER). The calculator will simulate your investment growth realistically.
Yes. For accumulation ETFs, the calculator is fully valid: dividends are reinvested within the fund and the compounding effect works automatically. For distribution ETFs, you need to manually reinvest dividends to benefit from compound interest; the calculator assumes full reinvestment, so the result is the maximum achievable if you reinvest all dividends.
Yes, as an approximation. With individual stocks, compound interest materializes mainly through dividend reinvestment and price appreciation. Enter the expected total annual return (price + reinvested dividends). Bear in mind that individual stocks are more volatile than a diversified index, and real results may deviate significantly.
It depends on the asset and your risk profile. As historical references: the S&P 500 has returned around 10% nominal annually over the long term; globally diversified markets (MSCI World) around 9%. Discounting inflation (~2%), historical real returns are around 6–8%. For a prudent simulation, use 5–7%. For an optimistic one, 8–10%. Always test multiple scenarios using "Compare".
Yes. In the advanced options you can enter the estimated annual inflation. The calculator will show both the nominal capital (the euro value without adjustment) and the real capital (the equivalent purchasing power in today's money). The default is 2%, which is the European Central Bank's reference.
Yes. In the advanced options you can enter the estimated tax rate on your capital gains. The calculator will apply that percentage to the gains generated (final capital minus total contributed) and show the estimated net capital after taxes. Actual taxation may vary depending on the product, year, and your personal situation.
Time is usually more decisive than the amount. Starting to invest 10 years earlier can generate more final capital than doubling the monthly contribution. This doesn't mean the amount doesn't matter, but that time is irreplaceable: you can't recover the years you haven't invested. The optimal strategy is to start as soon as possible and contribute as consistently as you can.
The 7% annual figure is an approximate historical reference for the real return (after inflation) of global stock markets over the long term. It doesn't mean you'll earn 7% every year: there will be years with 30% losses and years with 25% gains. The key is the long term. For periods over 20 years, 7% is a reasonable estimate for globally diversified portfolios. For shorter periods, real results may differ greatly from the average.
The capital you already have invested continues to grow thanks to compound interest, even without new contributions. However, growth will be less than if contributions had continued. You can simulate this scenario in two steps: calculate the capital you would have when you stop contributing, then use it as the "initial investment" in a new simulation with €0 monthly contribution for the remaining period.
Yes. Use the "Monthly contribution" tab at the top of the calculator. Enter your target capital, available initial capital, years ahead, and expected return. The calculator will mathematically solve how much you need to contribute each month (or quarter, or year) to reach that goal.
Yes. You can export the year-by-year table in CSV format by clicking the "Export CSV" button. The file can be opened in Excel, Google Sheets, or any spreadsheet. You can also print the results with the "Print" button, or copy the simulation URL with all parameters to share it.
Legal and financial notice
This calculator provides an indicative simulation based on user-entered data. The results do not constitute financial, tax, or legal advice. Past returns do not guarantee future returns. Financial markets carry risk of loss of invested capital. Before making investment decisions, consult a qualified professional.
