COMPOUND INTEREST CALCULATOR

A worked example

Let's say you invest $200 a month. That's about the cost of a weekly takeaways-and-brunch habit.

You do it for 30 years, and let's assume 8% a year - roughly the long-run average of the big share indexes, though history is never a promise.

Over those 30 years, you personally put in $72,000. Two hundred bucks a month, month after month, nothing fancy.

At the end? Just under $300,000.

So where did the other ~$226,000 come from? You didn't earn it. You didn't work for it. That's compounding - your returns earning returns, quietly stacking on top of each other while you got on with your life.

That's the whole game. The money you put in is the small part. The growth on top is the big part - as long as you give it time.

Punch your own numbers in above and see what your monthly habit turns into.

What most people get wrong about compound interest

Here's the part nobody tells you: almost all the magic happens right at the end.

Compounding isn't a straight line. It's a curve that barely moves for years, then goes vertical. In that $200-a-month example, more is added in the final five years than in the first twenty combined.

Which leads to the two mistakes people make over and over.

Mistake one: starting late. Take two people, both putting away $200 a month at 8%. One starts at 25. The other waits until 35 - same amount, same everything, just ten years later.

The one who started at 25 ends up with around $700,000. The one who waited until 35 ends up with just under $300,000.

Read that again. Starting ten years earlier meant putting in an extra $24,000 - and walking away with roughly $400,000 more. That's not a typo. That's what those ten early years are worth, because they're the years with the most time to compound.

Mistake two: interrupting it. The number one rule of compounding is you don't touch it. But it's the hardest rule to follow, because the pot gets tempting right when it's finally growing fast. Cash it out to fund a car or a reno, and you don't just lose the money - you lose every dollar it would have become.

And the thing people get most wrong of all? Thinking they need a big lump sum to start. You don't. Every $10 you put in is another brick in the wall. Start with what you've got, this week, and let time do the rest.

Because here's the truth: the 30 years are going to pass whether you invest or not. The only question is whether you've got something to show for them at the end.

Compound interest FAQs

How does compound interest actually work?

You earn a return on your money. Then next year, you earn a return on your money plus last year's return. Then the year after, you earn a return on all of that. It's interest earning interest, and left alone for long enough it snowballs into sums far bigger than what you actually put in.

What's the difference between compound and simple interest?

Simple interest only ever pays you on your original amount. Compound interest pays you on your original amount and all the growth it's already made. Over a year or two the difference is small. Over 30 years it's the difference between a nice little sum and a life-changing one.

What return rate should I use in the calculator?

There's no "correct" number, and nothing is guaranteed. As a reference point, the S&P 500 has averaged around 10% a year over the long run, and the NZX 50 around 9% - but those come with plenty of ups and downs along the way. Plenty of people plug in a more conservative 6-7% so they're not banking on a rosy scenario. Try a few and see how much the assumption changes things.

Should my investment compound monthly or annually?

More frequent compounding grows your money slightly faster, because the returns get reinvested sooner. But the effect is small next to the two things that actually move the needle: how much you invest, and how long you leave it alone. Don't sweat the compounding frequency - sweat the time.

How much money do I need to start?

Whatever you've got. There's no minimum to begin, and small amounts started early beat big amounts started late almost every time. Every $10 is a brick. The point is to start now, not to start big.

Does compound interest apply to KiwiSaver and shares?

Yes. When your KiwiSaver fund or your Sharesies investments earn returns and those returns stay invested, they compound right along with your contributions. That's exactly why leaving it alone for decades - and not cashing out early - matters so much.

This calculator and page are general information only and not financial advice. Everyone's circumstances will vary - always do your own research and consult your own financial professionals before making decisions.