How compound growth works

Growth can build on earlier growth

Suppose a hypothetical account starts with $100 and grows by 5% in one year. The next year’s calculation begins with the original amount plus the earlier growth. That is the basic compounding idea: growth can earn growth.[1]

Real savings accounts and investments do not all work the same way. Fees, taxes, inflation, changing rates, and market losses can change results.

Four inputs matter

1. Starting amount: money already there.
2. Contributions: new money added over time.
3. Time: how long the process continues.
4. Assumed rate: a number used to explore a scenario—not a guaranteed result.

The calculator on this site shows your contributions separately from hypothetical growth. That helps prevent a large total from looking like free or certain money.

Two questions, not one

Do not ask only, “What is the ending balance?” Also ask:

• How much did I put in?
• How much came from the assumed growth?
• What if the rate were lower, zero, or negative in some years?
• What costs or taxes are missing?

Starting earlier changes time—not certainty

More years can give compounding more chances to work. More years can also include difficult periods. The lesson is not “returns are guaranteed.” The lesson is that time and consistent habits can be powerful inputs.

Try it responsibly

Run the same contribution through three assumptions: 0%, a modest positive rate, and a higher positive rate. Compare the gap. The wider the gap, the more the result depends on an uncertain assumption.

A simulation is a question you ask numbers. It is not a prediction.