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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


Use the Compound Interest Calculator - Getting Interest On Interest to see how compound interest works for different rates of retune and time periods.


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 20, 30 and 40 years.

For example, if you invest $200 each month at six percent for 20 years, you'll have $92,408. If you invest $200 each month at six percent for 30 years, you'll have $200,903.

Future Value of Monthly Investments
Rate of Return is 6%
Monthly Investment
Accumulation Period (Years)
20
30
40
$50
$23,102
$50,226
$99,575
$100
$46,204
$100,452
$199,149
$200
$92,408
$200,903
$398,298
$300
$138,612
$301,355
$597,447
$400
$184,816
$401,806
$796,596
$500
$231,020
$502,258
$995,745
$1,000
$462,041
$1,004,515
$1,991,490
$2,000
$924,082
$2,009,030
$3,982,981


Use the Recurring Investment Calculator to see how invetsments grow with recurring investments.