The Power of Compound Interest
Compound interest is often called the "eighth wonder of the world." Unlike simple interest, where you earn money only on your initial principal, compound interest allows you to earn interest on your interest. Over long periods (10+ years), this exponential growth can turn modest monthly contributions into substantial wealth. This calculator helps you visualize that curve.
Investment Vehicles Explained
Mutual Funds & ETFs: Baskets of stocks that offer instant diversification. Historically, the S&P 500 has returned about 10% annually before inflation.
High-Yield Savings: These accounts pay higher interest rates than traditional checking accounts, making them ideal for emergency funds or short-term goals.
CDs (Certificate of Deposit): You lock your money away for a set term (e.g., 1 year) in exchange for a guaranteed interest rate. They are extremely safe but offer lower returns than stocks.
Inflation and Real Returns
When calculating long-term growth, it's important to remember inflation (the rising cost of goods). If your investment grows by 7% but inflation is 3%, your "real" return (purchasing power increase) is only about 4%. Our advanced modes help you account for depreciation and net present value (NPV) to make smarter decisions.
Start Early, Invest Consistently
Time is your biggest asset. Investing $500/month starting at age 25 yields significantly more at age 60 than starting at age 35, even if you invest double the amount later. Use the "Recurring Deposit" mode to see how consistent habits impact your financial future.