The difference from simple interest
Simple interest applies only to the initial principal. With compound interest, earnings remain invested and produce additional earnings themselves. The gap grows over time when the assumed rate stays positive. The same principle can work against borrowers by increasing debt burdens.
The numbers, step by step
At a constant 5%, €1,000 becomes €1,050 after one year and €1,102.50 after two. After ten years, the model produces approximately €1,628.89. With simple interest, the ten-year amount would be €1,500. All figures are before costs, taxes and inflation.
The formula without monthly contributions
With annual compounding, the formula is A = P × (1 + r)ⁿ. P is the principal, r the annual rate as a decimal and n the number of years. For 5%, use r = 0.05. Contributions need an additional calculation because each deposit remains invested for a different length of time.
What regular contributions change
A deposit at the beginning of a month has one more month to compound than a month-end deposit. Our calculator assumes month-end contributions and derives a monthly rate from the assumed effective annual rate. It separates your contributed capital from modelled earnings so you can see the effect.
Why stock-market returns are not fixed interest
Market returns are uneven and can be negative. A 20% gain followed by a 20% loss does not cancel out: €100 becomes €120 and then €96. A constant-rate model does not capture these fluctuations.
Calculate and interpret
Try multiple horizons and rates instead of relying on one result. The calculator is an educational tool, not a forecast. Fees, taxes and inflation also affect your actual purchasing power. A mathematical final amount is therefore not guaranteed future wealth.
Read more from official sources
Financial education for orientation. No individual investment, tax or legal advice.