Compound Interest Calculator

What is a realistic return rate to use in projections?

For a US-equity-heavy portfolio over 20+ years, 7 percent real (after inflation) is a reasonable planning assumption. This comes from the long-run S&P 500 return of roughly 10 percent nominal minus the long-run inflation of 3 percent. For a diversified 60/40 portfolio (60 percent stocks, 40 percent bonds), 5 percent real is more realistic. For an all-bond portfolio, 1 to 2 percent real. Vanguard, Fidelity, BlackRock, and most institutional researchers publish capital market assumptions annually — current 10-year expectations as of 2024 are generally 4 to 6 percent real for equities, lower than the 100-year average. Be conservative and stress-test with 3 and 5 percent scenarios.

Should I use real or nominal returns in this calculator?

Plan in real returns for any horizon over 5 years. Real returns give you the future buying power of your balance in today's dollars, which is the question you actually care about. A 2 million USD nominal balance in 30 years sounds impressive, but at 2.5 percent inflation that is only 950K USD in today's buying power — still good, but not the number the nominal figure suggests. Use nominal for short-term cash flows (a 6-month CD, a 2-year car loan) where inflation barely moves the needle. For retirement, college, or house-down-payment projections spanning 10+ years, always think in real terms.

How does the compounding frequency affect my results?

Less than most people expect. Daily compounding at 7 percent annual produces 7.25 percent effective annual yield; monthly produces 7.229 percent; quarterly 7.186 percent; annual 7.0 percent. Over 30 years on a 100K USD portfolio the gap between daily and annual compounding is roughly 2 percent of final balance — meaningful but secondary to contribution rate and return assumption. High-yield savings accounts typically compound daily; most mutual funds and ETFs effectively compound continuously as NAV updates daily; 401(k) contributions compound per contribution cycle (semi-monthly for most plans). Pick monthly as the realistic default for long-term planning.

Does this calculator account for taxes?

No. It returns gross (pre-tax) growth. For a Roth IRA, the gross number is also the net number because qualified withdrawals after 59.5 are tax-free. For a Traditional 401(k) or IRA, apply your expected retirement marginal rate (often 12 to 22 percent for middle-class retirees) to the entire balance at withdrawal. For a taxable brokerage, apply long-term capital gains rates (15 percent for most, 20 percent plus 3.8 percent NIIT for high earners) to the realized gains on sale. For an HSA, withdrawals for qualified medical expenses are tax-free — effectively triple-tax-advantaged. This is not tax advice; a CPA can model your specific after-tax balance based on your expected retirement income and filing status.

What happens if the market has a 50 percent crash right before I retire?

This is sequence-of-return risk and the calculator does not model it. A constant 7 percent return assumption smooths over the reality that markets are volatile and the order of returns matters. If your portfolio drops 40 percent in year 29 of a 30-year plan, your final balance can be 30 to 40 percent below the projection even if the long-run average return held. Mitigations include glide-path asset allocation (shifting to bonds as you approach retirement), bucket strategies with 3 to 5 years of expenses in cash equivalents, and variable withdrawal rules like Guyton-Klinger. A Monte Carlo simulator (FIRECalc, ficalc.app) gives a probabilistic view that a deterministic calculator cannot match.