What is compound interest?

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (calculated only on the principal), compound interest makes your money grow exponentially over time. The longer you invest, the more powerful compounding becomes.

What's a realistic return rate to use?

For Australian investments: high-interest savings accounts earn 4.5-5.5% (2026), term deposits around 4-5%, Australian shares (ASX 200) average 9-10% long-term including dividends, and diversified ETFs typically return 7-9%. Use a conservative estimate to set realistic expectations.

How is compound interest taxed in Australia?

Interest earned in bank accounts is taxable income at your marginal rate. Dividends from shares may qualify for franking credits. Capital gains held over 12 months get a 50% CGT discount. Inside superannuation, earnings are taxed at just 15% (or tax-free in pension phase).

Compound Interest Calculator

Calculator

Calculate how your savings grow with compound interest over time. See the power of compounding on your investments.

Free to useNo data storedAI insightsUpdated: February 2026

Compound interest is the most powerful force in investing — it's earning interest on your interest. Even small amounts invested regularly can grow into substantial wealth over time. Albert Einstein reportedly called compound interest the 'eighth wonder of the world.' This calculator shows you exactly how your savings will grow with the power of compounding, whether you're saving in a bank account, investing in ETFs, or building a share portfolio.

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Real-World Examples

The Power of Starting Early

Emma starts investing $500/month at age 25 with a 7% annual return. She continues until age 65.

Emma's total contributions are $240,000, but her balance grows to approximately $1.2 million. Over $960,000 comes from compound interest alone — that's 4x her contributions.

Lump Sum + Regular Contributions

James invests $50,000 upfront and adds $200/month for 15 years at 8% return.

The $50,000 lump sum grows to $159,000 on its own. Add the $200/month contributions and total reaches $228,000. Starting with a lump sum gives compounding a massive head start.

Frequently Asked Questions

Glossary

Compound Interest

Interest calculated on the initial principal plus all accumulated interest. Each period's interest is added to the principal, creating a snowball effect.

Compounding Frequency

How often interest is calculated and added to the principal. More frequent compounding (daily vs annually) results in slightly higher returns.

Rule of 72

A quick formula to estimate how long it takes to double your money. Divide 72 by the annual interest rate. At 7%, money doubles in ~10.3 years.

Real Return

The investment return after subtracting inflation. If you earn 7% but inflation is 3%, your real return is approximately 4%.

Related Tools

Savings Goal Calculator

Work backwards — how much do you need to save each month to reach your goal?

Term Deposit Calculator

Compare guaranteed returns from term deposits.

ETF Returns Calculator

Calculate expected returns from ETF investments.

How to Use

1Enter your initial deposit (the lump sum you're starting with).
2Set a regular monthly contribution amount.
3Input the expected annual return rate for your investment type.
4Choose how often interest compounds (monthly is most common).
5Set your investment timeframe in years.
6Optionally add a tax rate on earnings to see the after-tax result.

Key Information

The 'Rule of 72' — divide 72 by your interest rate to estimate how many years it takes to double your money (e.g., 7% return = ~10.3 years to double).
Starting early matters enormously. $500/month from age 25 to 65 at 7% = ~$1.2M. Starting at 35 = ~$567k. 10 years costs you more than half.
Australian high-interest savings accounts currently offer 4.5-5.5% (2026). Share market long-term average is 9-10%.
Interest earned outside of super/tax-advantaged accounts is taxable at your marginal rate.

Pro Tips

Even an extra $50/week makes a massive difference over 20+ years thanks to compounding.
Reinvest dividends rather than spending them — this is compounding in action.
Compare 'daily compounding' vs 'annual compounding' — daily compounding gives you slightly more at the same rate.
Use this calculator with both conservative (5%) and optimistic (10%) return rates to see a range of outcomes.

Avoid These Mistakes

Using gross returns without accounting for fees, which can reduce effective returns by 0.5-1.5%.
Not adjusting for inflation — $1M in 30 years buys much less than $1M today.
Assuming consistent returns every year — markets fluctuate, averages smooth out volatility.
Withdrawing early and breaking the compounding chain — consistency is key.

Disclaimer: This calculator provides estimates only and should not be relied upon for financial decisions. Interest rates, fees, and policies change frequently. Always verify information with lenders directly. This is general information, not personal financial advice. Consider seeking advice from a licensed mortgage broker or financial advisor.

Last updated: February 2026