Compound interest explained
Small steps. Remarkable possibilities.
Compounding means earning returns on earlier returns. Time, contributions, fees and the path of returns all affect the result.
Start with one dollar
If $100 grows by 5% in a year, it becomes $105. Another 5% is then applied to $105, producing $110.25. The extra 25 cents is the return on the first year’s growth. This is a mathematical example, not a promised investment return.
Separate what you save from what you earn
Your contributions are money you put in. Growth is the difference between the final value and those contributions. In the calculator, contributions arrive at the end of each month and the annual nominal rate is divided by 12. Different compounding conventions produce different results.
The useful question is: what if?
Try a lower return, higher fees or a pause in contributions. A smooth projection hides the ups and downs of markets. Taxes, inflation and investment fees can reduce what your balance will buy. Compare scenarios instead of treating one line as your future.
Try the idea
Start with $100 and reinvest a constant annual return. This mathematical example excludes contributions, fees, tax and inflation.
View values
A projection assumes a constant return. What does that mean?
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