What is compound interest
Compound interest is interest earned on interest. Each year the return applies to what you put in plus what it has already earned, which is why growth speeds up over time.
An example: €10,000 at 6% a year earns €600 in the first year. In the second year the 6% applies to €10,600, so it earns €636. In the third, €674. Without touching it, after 25 years that €10,000 becomes €42,919.
With simple interest only the starting amount earns: the same €10,000 at 6% would earn €600 every year, €15,000 over 25 years. The difference, €17,919, is the compounding effect.
What €200 a month becomes
With €10,000 to start and €200 a month at 6% a year for 25 years you build up about €178,800. Of that, €70,000 is what you put in and €108,800 is interest. With 2% inflation, that's about €109,000 in today's money.
The formula, with contributions
Without contributions, the final balance is:
Cn = C0 · (1 + r)n
If you also add a fixed amount A at the end of each year, you add the contributions part:
Cn = C0 · (1 + r)n + A · [(1 + r)n − 1] / r
- Cn: the balance after n years.
- C0: the starting amount.
- A: the yearly contribution.
- r: the annual return as a decimal (6% = 0.06).
- n: the number of years.
Example: €10,000 to start plus €2,400 a year (€200 a month) at 6% for 25 years gives €174,594. The calculator works month by month, so with monthly contributions the result is a bit higher: each contribution starts earning sooner.
Compound interest with inflation
Inflation means each future euro buys less. That's why this calculator also shows the result in today's euros: what that money would buy today.
The real return is: (1 + return) / (1 + inflation) − 1. With a 6% return and 2% inflation, the real return is 3.92% a year, not 4%.
And idle money loses too: with 2% inflation, €10,000 in an account that pays nothing is worth about €6,100 in today's money after 25 years.
How much you build by what you put in
Contributing every month, with no starting amount and a 6% annual return:
| 10 years | 20 years | 30 years | |
|---|---|---|---|
| €100 a month | €16,326 | €45,565 | €97,926 |
| €200 a month | €32,653 | €91,129 | €195,851 |
| €300 a month | €48,979 | €136,694 | €293,777 |
| €500 a month | €81,632 | €227,823 | €489,628 |
Starting at 25 or at 35
With €200 a month at 6% a year until 65, someone who starts at 25 ends up with about €383,400 and someone who starts at 35, with about €195,900. The ten-year head start means €24,000 more put in and €187,500 more at the end.
The rule of 72
To find how many years it takes to double your money, divide 72 by the annual return. It's a very good approximation between 2% and 12%.
| Return | Rule of 72 | Exact |
|---|---|---|
| 2 % | 36 years | 35 years |
| 4 % | 18 years | 17.7 years |
| 6 % | 12 years | 11.9 years |
| 8 % | 9 years | 9 years |
| 10 % | 7.2 years | 7.3 years |
What this calculator leaves out
- Returns aren't constant. Markets go up and down, and past returns don't guarantee future ones. Use the calculator to see orders of magnitude, not to predict an exact figure.
- Fees. A yearly fee on what you hold cuts the return every year, and that effect compounds too.
- Taxes. In Spain, gains are taxed in the savings band of income tax (IRPF, from 19% to 30%) when you sell. Investment funds can be switched into one another without paying tax until you cash out.
Frequently asked questions
What return should I put in the calculator?
The calculator doesn't assume one: you choose it. It depends on where the money is: a savings account, a deposit, bonds or shares have very different returns and risks. Try a few values, such as 2%, 4% and 6%, to see a range instead of a single figure.
What's the difference between simple and compound interest?
With simple interest only the starting amount earns. With compound interest the interest you've already earned earns too, so growth speeds up over the years. Over 25 years at 6%, €10,000 becomes €25,000 with simple interest and €42,919 with compound interest.
What are today's euros?
It's the result with inflation taken out: what the money you'll have in the future would buy today. If in 25 years you have €100,000 and average inflation has been 2%, that's about €61,000 in today's money.
What is compounding frequency, and nominal rate vs APY?
Compounding frequency is how often interest is added to the balance. The nominal rate is the stated yearly rate; the APY (TAE in Spain) is the effective yearly return once interest is added. A 6% nominal rate compounded monthly equals a 6.17% APY. If you're unsure, leave compounding yearly: then the rate you enter is the effective return.
Is it better to contribute at the start or the end of the month?
At the start: each contribution earns for one more month. The difference is small in a month but adds up over the long run. You can compare both in More options.
How much do I need to save each month to reach an amount?
Choose «How much to save» at the top, enter your goal, the time frame and the return, and the calculator shows the monthly contribution you need. You can set the goal in today's euros so it accounts for inflation.
Do you pay tax on compound interest?
Yes, when you realise the gain. In Spain it's taxed in the savings band of income tax, from 19% to 30% depending on the amount. Interest from accounts and deposits is taxed every year; with investment funds, when you cash out, and you can switch between funds without paying tax. This calculator doesn't take tax off.
Does the calculator store my data?
No. The maths runs in your browser and we don't ask for sign-up or email. If you share the link, the numbers travel in the web address itself.
How we calculate
We simulate month by month. The annual return is turned into an equivalent monthly rate; with yearly compounding, the rate you enter is the effective return (APY). Today's euros divide each year's balance by (1 + inflation) to the power of the number of years.
By the Davant team ·