Question 1

How does compound interest work?

Accepted Answer

Compound interest is interest earned on both your original money and the interest it has already earned. Each period, your balance grows, and the next period's interest is calculated on that larger balance — so growth accelerates over time. The longer the money compounds and the more often it compounds, the larger the effect. This calculator compounds monthly and adds your monthly contributions along the way.

Question 2

What is a realistic rate of return to use?

Accepted Answer

For a diversified stock-and-bond portfolio, a long-run nominal return of about 6–8% per year is a common planning assumption (lower if you adjust for inflation). Cash and high-yield savings are typically lower. Real returns vary year to year and are never guaranteed, so try a few rates to see the range rather than relying on one number.

Compound Interest Calculator