Compound Interest Calculator

Compound interest is interest earned on both the original principal and on previously-earned interest. As your balance grows, the amount of interest you earn each period grows too — creating an accelerating curve.

It's been called "the eighth wonder of the world" because the difference it makes over decades is staggering. $10,000 invested at 7% for 30 years grows to ~$76,000 — but $10,000 at 7% for 40 years grows to ~$150,000. The last 10 years almost doubles the result.

It depends entirely on what you're invested in. Some realistic 2026 benchmarks:

• High-interest savings account: 4–5% (taxable as income)
• Term deposit: 4–5.5% (taxable, locked in)
• Australian shares (long-term avg): ~9% per year including dividends
• Global shares (long-term avg): ~10% per year
• Balanced super fund: 7–8% per year long-term average
• Property (capital + rental yield): 6–8% per year
• Cash/savings: typically below inflation over long periods (loses purchasing power)

For long-term retirement projections, 6–7% (after fees, before tax) is a common conservative assumption. Don't use 10%+ unless you're modelling 100% growth assets and ignoring fees.

The more often interest compounds, the larger the result — but the difference is smaller than people often think.

$10,000 at 7% for 30 years:

• Annual compounding: $76,123
• Quarterly compounding: $79,829
• Monthly compounding: $80,966
• Daily compounding: $81,623

That's only ~7% extra value going from annual to daily. Most savings accounts compound monthly or daily; most bonds and annuities compound annually. For practical purposes, the difference is real but rarely the deciding factor.

Compound interest calculations show nominal returns — the dollar amount in the future. But inflation erodes purchasing power, so the "real" return is what matters for actual buying power.

Rule of thumb: subtract average inflation (~2.5% in Australia long-term) from your nominal return. A 7% nominal return is really ~4.5% in real terms.

Example: $1,000,000 in 30 years sounds great, but at 2.5% inflation it has the same purchasing power as ~$477,000 today. Still excellent — but plan around real returns, not nominal.

Yes, mostly. Interest income (savings, term deposits, bonds) is taxed at your marginal rate every year you earn it. Dividends are also taxable income, though Australian shares often come with franking credits that offset some tax.

Capital gains (selling shares or property at a profit) are taxed only when you sell. If held over 12 months, only 50% of the gain is taxable for individuals — the CGT discount.

Inside super, all earnings are taxed at 15% — much lower than most people's marginal rate. That's why super is the most tax-effective long-term investment vehicle in Australia for most people.

Both work — and combining them is best.

If you have a lump sum sitting in cash earning low interest, the maths almost always favours investing it immediately ("lump sum investing") rather than spreading it out over months ("dollar-cost averaging"). The market goes up more often than down, so being out of it loses returns.

However, dollar-cost averaging has psychological benefits: it removes the timing decision and reduces regret if markets crash right after a lump-sum investment. For most people, automatic regular contributions on top of an initial lump sum is the practical sweet spot.

As early as possible. Compound interest rewards time more than it rewards amount.

Two scenarios at 7% return:

• Person A: starts at 25, invests $5,000/year for 10 years, then stops. Total contributed: $50,000. Value at 65: ~$680,000
• Person B: starts at 35, invests $5,000/year for 30 years. Total contributed: $150,000. Value at 65: ~$510,000

Person A invested less than half as much but ends up with more, because their money had longer to compound. The math punishes procrastinators harshly.