Compound interest explained: what 200 a month can become
Small, regular deposits grow slowly at first and then surprisingly fast. The charts below show exactly when and why.
Key takeaways
- At 7% a year, 200 a month for 30 years grows to about 244,000, from 72,000 of deposits.
- Starting ten years earlier more than doubles the final balance at the same rate.
- The rule of 72 estimates doubling time: 72 divided by the yearly rate.
How compound interest works
With simple interest, you earn a return only on the money you put in. With compound interest, each period's interest is added to the balance, so the next period's interest is calculated on a larger amount. Interest starts earning interest of its own.
Balance = P × (1 + r ÷ n)n × t
P is the starting amount, r the yearly rate, n the number of times interest is added each year, and t the number of years.
When you add money every month, each deposit compounds for a different length of time. The compound interest calculator handles this by working through the balance month by month.
What 200 a month grows to in 30 years
Suppose you invest 200 at the end of every month for 30 years, with returns compounded monthly. You deposit 72,000 in total. What you end up with depends heavily on the rate.
- 10% a year
- 7% a year
- 4% a year
- Deposits only
Show the data
| Year | 10% a year | 7% a year | 4% a year | Deposits only |
|---|---|---|---|---|
| 0 | $0 | $0 | $0 | $0 |
| 5 | $15,487 | $14,319 | $13,260 | $12,000 |
| 10 | $40,969 | $34,617 | $29,450 | $24,000 |
| 15 | $82,894 | $63,392 | $49,218 | $36,000 |
| 20 | $151,874 | $104,185 | $73,355 | $48,000 |
| 25 | $265,367 | $162,014 | $102,826 | $60,000 |
| 30 | $452,098 | $243,994 | $138,810 | $72,000 |
At 4%, the balance reaches about 138,800. At 7%, about 244,000. At 10%, about 452,100. The lines stay close for the first decade and then pull apart, because the interest earned each year grows with the balance. At 7%, the interest earned in year 30 alone is larger than two full years of deposits.
Why starting early beats saving more later
Two savers each put 200 a month into an investment returning 7% a year until they turn 65. One starts at 25, the other at 35. The early starter deposits only 24,000 more but ends with more than twice as much.
- Total deposited
- Balance at 65
Show the data
| Saver | Total deposited | Balance at 65 |
|---|---|---|
| Starts at 25 | $96,000 | $524,963 |
| Starts at 35 | $72,000 | $243,994 |
The early saver finishes with about 525,000 from 96,000 of deposits. The later saver ends with about 244,000 from 72,000. Those extra ten years at the start do the most work, because money added early has the longest time to compound.
The rule of 72
To estimate how long an amount takes to double, divide 72 by the yearly rate. At 6%, money doubles in about 12 years. At 9%, in about 8. The rule is an approximation that works best between roughly 4% and 12%, and it is handy for checking whether a promised return is realistic.
Does compounding frequency matter?
Less than most people think. At 5% a year, monthly compounding gives an effective annual rate of about 5.12%, and daily compounding only a little more. Over 10 years, 10,000 grows to about 16,289 with yearly compounding and 16,487 with daily compounding. The rate you earn and the years you stay invested matter far more than how often interest is added.
What reduces real growth
- Fees. A 1% yearly fee on a 7% return leaves 6%, which cuts the 30-year result by roughly a sixth.
- Tax. Interest and gains may be taxed each year or when you withdraw, depending on your account type and country.
- Inflation. If prices rise 2.5% a year, a 7% return is worth closer to 4.5% in today's money.
- Volatility. Market investments don't return the same amount every year. A steady 7% is a planning assumption, not a promise.
Setting a monthly amount that works
Work backwards from a goal. If you want roughly 150,000 in 25 years and assume 6% a year, try different deposits in the calculator until the final balance matches. You will find that about 220 a month gets you close. If that feels too high, see what happens when you extend the time frame by five years instead of raising the deposit: the required monthly amount drops noticeably, because the extra years let compounding do more of the work.
It also helps to automate deposits on payday. Money that moves before you can spend it is far more likely to stay invested, and increasing the amount a little each time your income rises keeps the plan on track without a big change to your budget.
How to use this for your own plan
Start with what you can deposit every month without strain, then try a cautious, a middle and an optimistic rate. Look at the gap between them rather than a single number. If the cautious result already meets your goal, you are in good shape. If only the optimistic one does, consider saving a little more or starting sooner, because those are the parts you control. This article is general information, not financial advice.
Work out your own numbers
See how savings grow with regular deposits over time.
Open the Compound interest calculatorFrequently asked questions
How much will 200 a month be worth in 30 years?
At a steady 7% a year, about 244,000. At 4%, about 138,800, and at 10%, about 452,100.
Is compound interest better than simple interest?
For savers, yes. Compound interest pays returns on earlier interest too, so the balance grows faster.
How often should interest compound?
More often is slightly better, but the difference between monthly and daily compounding is small.
What is the rule of 72?
Divide 72 by the yearly rate to estimate how many years money takes to double.
Are investment returns guaranteed?
No. Only fixed-rate products such as some savings accounts guarantee a rate. Market returns vary from year to year.