Compound Interest Makes Money Grow
With compound interest you receive interest on interest. So if you hold an investment for a long period, the value of the investment grows very rapidly after a few years. Compound interest works its magic for investors who are able to save and invest for retirement at an early age.
The following chart shows the annual values of a $10,000 initial investment as it grows at an interest rate of 6 percent. After 50 years the $10,000 grows to $184,200.
The following table shows the compound interest multipliers
for different interest rates and holding periods. For a 6 percent rate
of return each dollar invested grows to $1.34 in five years, $1.79 in
10 years and $3.21 in 20 years. After 30 years the growth accelerates
so $1 grows to $10.29 in 40 years and $18.42 in 50 years.
At higher interest rates the growth after 40 and 50 years is very large.
| Compound
Interest Multipliers |
|||||
|
Year |
Rate of Return |
||||
| 2% |
4% |
6% |
8% |
10% |
|
| 1 |
1.02 |
1.04 |
1.06 |
1.08 |
1.10 |
| 2 |
1.04 |
1.08 |
1.12 |
1.17 |
1.21 |
| 3 |
1.06 |
1.12 |
1.19 |
1.26 |
1.33 |
| 4 |
1.08 |
1.17 |
1.26 |
1.36 |
1.46 |
| 5 |
1.10 |
1.22 |
1.34 |
1.47 |
1.61 |
| 10 |
1.22 |
1.48 |
1.79 |
2.16 |
2.59 |
| 20 |
1.49 |
2.19 |
3.21 |
4.66 |
6.73 |
| 30 |
1.81 |
3.24 |
5.74 |
10.06 |
17.45 |
| 40 |
2.21 |
4.80 |
10.29 |
21.72 |
45.26 |
| 50 |
2.69 |
7.11 |
18.42 |
46.90 |
117.39 |
Future Value of Monthly Investments
The following table shows the effect of compound interest for monthly investments made for many years. Each cell represents the dollars accumulated for a given monthly investment and a given accumulation period. The rate of return is 6 percent and the accumulation periods are 10, 20 and 30 years.
For example, if you invest $200 each month at 6 percent for 20 years,
you'll have $92,870. If you invest $200 each month at 6 percent for 30
years, you'll have $201,908.
| Future
Value of Monthly Investments |
|||
| Rate of Return is 6% |
|||
| Monthly Investment |
Accumulation Period |
||
| 10 |
20 |
30 |
|
$50 |
$8,235 |
$23,218 |
$50,477 |
$100 |
$16,470 |
$46,435 |
$100,954 |
$200 |
$32,940 |
$92,870 |
$201,908 |
$300 |
$49,410 |
$139,305 |
$302,861 |
$400 |
$65,879 |
$185,740 |
$403,815 |
$500 |
$82,349 |
$232,176 |
$504,769 |
$1,000 |
$164,699 |
$464,351 |
$1,009,538 |
$2,000 |
$329,397 |
$928,702 |
$2,019,075 |
Use the Compound
Interest Calculator - Getting Interest On Interest to see how compound interest works for different rates of retune and time periods.