How does this calculator work?
Each month, interest = balance × (annual rate ÷ 12) is added, then contributions are deposited. For yearly deposits, contributions are added only in the first month of each year. Tax is applied as your rate × cumulative returns, and inflation is discounted by dividing by (1 + inflation/12) each month. Changing any input recalculates instantly.
What is the difference between compound and simple interest?
Simple interest accrues only on principal; compound interest adds interest to principal so it earns more interest on top. On $100,000 at 5% over 30 years, simple gives $100,000×(1+0.05×30)=$250,000, while compound gives $100,000×1.05^30≈$432,000 — a $182,000 gap. The gap grows exponentially with time.
How different are monthly vs yearly compounding?
More frequent compounding helps. At the same 5% annual rate, yearly reinvests once a year while monthly reinvests 12 times, raising the effective rate slightly (5% monthly ≈ 5.12% effective). But term and rate matter far more than frequency. This calculator uses monthly compounding.
What is the Rule of 72?
A quick estimate: years to double ≈ 72 ÷ annual rate (%). At 7% it takes about 10.3 years, at 6% about 12 years, at 4% about 18 years. You can also invert it — to double within 10 years you need about 7.2%. It works best for a one-time lump sum rather than ongoing deposits; use this calculator for the exact figure.
How is interest income taxed in the U.S.?
Interest from savings accounts, CDs, and bonds is taxed as ordinary income at your marginal federal rate (10–37%), plus state tax where applicable and a 3.8% Net Investment Income Tax for high earners. Interest inside a Roth IRA or from municipal bonds can be tax-free, and long-term capital gains use the lower 0/15/20% rates — enter the rate that matches your situation.
What if I save $1,000 per month for 30 years with compounding?
At a 7% annual return (close to the long-term S&P 500 average), you'd accumulate about $1.22M (pre-tax, before inflation). At a 4% high-yield savings rate, about $700,000. Since principal is $360,000 ($1,000 × 360 months), roughly $860,000 of the 7% result is pure compound growth. The same contribution nearly doubles depending on the product — add your tax rate and expected inflation here to also see after-tax real value.
How is after-tax return calculated?
This calculator applies your tax rate only to cumulative 'profit' (balance − principal), then subtracts it from the balance for the after-tax amount; principal is never taxed. Enter your marginal rate for a taxable account and 0% for a Roth IRA to see how the tax gap widens over a long horizon.
How do I maximize compounding with a Roth IRA or Roth 401(k)?
A Roth IRA or Roth 401(k) lets your money grow completely tax-free — qualified withdrawals are taxed at 0%, versus ordinary income tax on interest in a taxable account. Over 30 years that difference compounds significantly, so set the tax rate to 0% to model a Roth and compare. For 2025 the Roth IRA limit is $7,000 ($8,000 if 50 or older) and Roth 401(k) salary deferrals can reach $23,500; qualified tax-free withdrawals require the account to be open 5 years and you to be at least 59½.
Are 7–10% annual returns realistic for stock ETFs?
The S&P 500 averaged about 10% annually (≈7% real, inflation-adjusted) from 1928–2025. Short-term volatility is high and future returns aren't guaranteed. More concentrated indexes like the Nasdaq-100 swing harder, while a bond-heavy mix runs lower, around 4–6%. We recommend a conservative scenario (5–7%) plus an optimistic one (8–10%) to see a realistic range.
How are variable yearly returns reflected?
This calculator assumes a fixed rate. Real markets fluctuate, so it's safer to run conservative (5%), base (7%), and optimistic (9%) scenarios separately as a range. The 'sequence of returns' risk near retirement — a big loss just before you retire — is handled in the FIRE calculator instead.