Personal finance
Households around the world keep trillions sitting idle in checking accounts. With average inflation of 2%, that money loses purchasing power every single year. There is an alternative, and it doesn't require a finance degree: it requires time. It's called compound interest.
€10,000 left in an account with 2% inflation is worth €8,200 in real terms after 10 years. You're losing purchasing power without even noticing.
Someone investing €200/month from age 25 ends up with more than someone investing €400/month from age 35, at the same rate. That head start can never be recovered.
With compound interest, every euro of return is added to your capital and starts generating returns of its own. The effect is slow at first, then becomes exponential.
Use the calculator below to see what happens to your savings over 10, 20 or 30 years. Results are theoretical simulations for educational purposes, not financial advice.
Interest earned is reinvested and generates new interest of its own. The formula accounts for the initial capital, regular contributions, the rate and the compounding frequency. The math works the same in any currency.
A = P × (1 + r/n)n·t + PMT × [((1 + r/n)n·t − 1) / (r/n)]
| Year | Total invested | Interest earned | Total balance | Real value |
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Compound interest is the process by which the interest earned on your capital is reinvested and, in turn, earns interest of its own in the next period. Unlike simple interest (which is always calculated on the initial capital only), compound interest produces exponential growth.
Albert Einstein is said to have called compound interest "the eighth wonder of the world". Whether or not he actually said it, the idea holds up: over long time horizons, even modest rates produce surprising results.
The most important variable is not the rate, but time. Starting to invest 10 years earlier can be worth more than doubling your initial capital.
With simple interest, interest is always calculated on the initial capital only:
With compound interest, the interest is added to the capital:
Want to know how many years it takes your money to double? Use the rule of 72: divide 72 by the annual rate.
It's a handy approximation that lets you compare investment options quickly, without any complex math.
Dollar-cost averaging (DCA) means investing a fixed amount at regular intervals (usually monthly) instead of putting everything in at once.
It has two main advantages:
Use the "Amount per contribution" field in the calculator to simulate the effect of regular contributions combined with an initial lump sum.
It depends on the asset class. Here are some rough benchmarks:
Keep in mind: past performance does not guarantee future results. Every investment carries risk, including the loss of capital. This calculator is an educational tool, not financial advice.
Compounding frequency is how often interest is added to your principal. The higher the frequency, the higher the final result, but the difference is less dramatic than most people expect.
Example: €10,000 at 7% for 20 years:
The gap between annual and monthly compounding is about €1,690, or 4.4%. Not negligible, but far less decisive than the rate and the length of the investment.
Inflation erodes the purchasing power of money over time. If you invest €10,000 and end up with €38,697 in nominal terms after 20 years, but average inflation was 2%, the real value is about €26,055 in today's money.
The calculator shows the real value in the multiplier card and as a separate line in the chart (visible whenever inflation is greater than zero). For a positive real return, your nominal rate of return must beat the inflation rate: 7% nominal with 2% inflation yields roughly 5% real.
Try setting the interest rate to 0% with 2% inflation: you'll see what cash left sitting in a checking account for 10, 20 or 30 years is really worth.
The main vehicles that harness compound interest (or an equivalent reinvestment mechanism) are:
Distributing ETFs pay dividends in cash: to get the compounding effect, you have to reinvest them yourself.
Most countries tax capital gains, dividends and interest. Typical rates fall somewhere between 10% and 35%, depending on your jurisdiction, income level and account type.
The calculator shows gross returns. To estimate your net return, apply your local tax rate: for example, a stock ETF returning 7% gross with a 26% tax on gains produces roughly 5.18% net (7% x (1 - 0.26)).