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
Year	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
Monthly Investment	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

Compound Interest Calculator

Check out Compound Interest Calculator - Getting Interest On Interest. It's easy to use and you can see how compound interest makes money grow.

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Updated December 17, 2007.