Compound interest is one of the most fascinating forces in the financial world – and a real game changer when it comes to building wealth. But What does compound interest actually mean? for your system? And what effect does it have over the years?
With ours Compound interest calculator you can find out easily. Regardless of whether you are making a one-off investment or saving regularly, the calculator will help you keep track and understand the impact of your interest.
Because sometimes one look is enough to see how small amounts become something big over time.
Instructions: How to use the compound interest calculator
With our compound interest calculator you can find out how your money develops over time in just a few steps.
It’s very easy to use and you don’t need to be a financial expert.
This is how the compound interest calculator works:
- Enter starting capital: Enter the amount you would like to invest at the beginning. This can be a larger one-off investment or a small amount to simulate development.
- Add annual savings rate: If you want to save regularly, enter the amount you would like to invest additionally here. You can also use the calculator without a savings rate if you only want to earn interest on the starting capital.
- Set interest rate: Enter the expected annual interest rate. This is the return you expect from your investment – for example 5% on an ETF investment.
- Select investment duration: Decide how long you want your money to be invested. Whether 5, 10 or 30 years – the longer, the greater the effect of compound interest.
- Start calculation: Click “Calculate” and see how your wealth could develop in seconds. The calculator shows you the final capital as well as the amount that arose solely from compound interest.
- Analyze results: Play with the numbers! Change savings rates, interest rates or the term and watch how even small adjustments can have a big impact.
With these simple steps, you can make the compound interest calculator your best tool for planning your financial future.
Try it out and discover how patience and regular investments can grow an impressive fortune.
Definition: Compound interest effect simply explained
Compound interest is essentially the secret to why your money can grow over the long term – and grow faster the longer you save. But what’s behind it?
It’s simple: you not only receive interest on the money you invest, but also on the interest you have already received. Over time, this creates a snowball effect in which your assets grow faster and faster.
An example to understand: You invest 1,000 euros and receive 5% interest every year.
- After the first year you have 1,050 euros (1,000 euros + 50 euros interest).
- In the second year, however, you will receive 5% interest on the 1,050 euros. That’s 52.50 euros in interest.
- Now you already have 1,102.50 euros – and so it goes on.
The longer the money stays around, the stronger the compound interest effect becomes. This works particularly well if you regularly save something, because then more and more capital earns interest.
In short: compound interest is the reason why “time” and “patience” are the best friends of savers and investors. He turns small amounts into a real fortune over many years!
Especially with savings plans ETFs The compound interest effect plays a crucial role.
Example: The compound interest effect in action
The compound interest effect develops its full effect when interest is reinvested again and again and thus generates interest on the entire investment amount. Let’s look at this with an example:
you lay 1,000 euros at an annual interest rate of 5% and pay extra every year 500 euros a. This is how your assets develop over 20 years:
| Year | Initial capital (€) | Interest (5%) (€) | Savings rate (€) | Final capital (€) |
|---|---|---|---|---|
| 1 | 1,000 | 50 | 500 | 1,550 |
| 2 | 1,550 | 77.50 | 500 | 2,127.50 |
| 3 | 2,127.50 | 106.38 | 500 | 2,733.88 |
| 5 | 3,814.08 | 190.70 | 500 | 4,504.78 |
| 10 | 8,144.47 | 407.22 | 500 | 9,051.69 |
| 20 | 20,348.43 | 1,017.42 | 500 | 21,865.85 |
- The interest rates are rather low at the beginning – only in the first year 50 euros.
- However, over time the interest increases significantly as it is calculated on the ever-increasing total capital.
- After 20 years You have not only paid in your savings installments (10,000 euros), but also have a final capital of over 10,000 thanks to the compound interest effect 21,865 euros.
Why is that? Because interest is calculated on an ever larger basis every year. At first the interest seems small, but the longer you leave the money there and the more you save, the more your assets multiply.
The conclusion? The compound interest effect may seem unspectacular at first – but with patience and a long time horizon, it is a real miracle weapon for building wealth.
Calculation: What is the compound interest formula?
The compound interest effect is explained simply mathematically – but the formula for it seems a bit complicated at first glance.
But don’t worry, we’ll break it down for you to understand.
Simply explained: the compound interest formula
The basic formula for calculating compound interest is:
Final capital = initial capital × (1 + interest rate)^term
- Final capital: The amount that comes out at the end of the term.
- Initial capital: The amount you initially invest.
- interest rate: The annual interest rate, in decimal form (e.g. 5% = 0.05).
- Duration: The duration of the system in years.
Example: 1,000 euros for 10 years with 5% interest
Let’s imagine you are laying 1,000 euros and receive an interest rate of 5% per year. This is what the calculation looks like:
Final capital = 1,000 × (1 + 0.05)^10
Final capital = 1,000 × 1.62889 ≈ 1,628.89 euros
So after 10 years you would have a final capital of 1,628.89 euroswithout further deposits. The additional ones 628.89 euros come exclusively from interest – and a large part of it comes from compound interest.
Tip: Take additional deposits into account
If you deposit regularly, the calculation becomes a little more complex. One is suitable for this Compound interest calculatorwhich calculates such scenarios quickly and easily.
Importance of compound interest for ETF savings plans and retirement provision
Compound interest is perhaps the most powerful tool when it comes to long-term wealth creation – especially in… ETF savings plans and the Retirement planning. It ensures that your money grows faster the longer it stays invested.
What does that mean specifically?
How does compound interest work in ETF savings plans?
With an ETF savings plan, you invest regularly – e.g. B. monthly – a fixed amount in ETFs. The compound interest effect works here because the income you earn from your ETFs (e.g. dividends or price gains) is reinvested again and again. This means that you not only earn on the money you originally invested, but also on the income you have already achieved.
Example: 100 euros per month over 20 years with a 6% return
- Amount deposited: 24,000 euros
- Income through compound interest effect: 23,720 euros
- Total assets: 47,720 euros
Without compound interest, you would have only deposited 24,000 euros – reinvesting the income almost doubles your final amount.
Why is compound interest so important for retirement planning?
This factor plays a role in retirement planning Time a crucial role. Compound interest works more effectively the longer your money stays invested. That’s why it’s so important to start saving early – even with small amounts.
Example: Difference between early and late start
- Person A: Starts at age 25 and saves 100 euros per month until age 65.
- Deposited: 48,000 euros
- Final amount at 6% return: 199,150 euros
- Person B: Starts at the age of 35 and also saves 100 euros per month until the age of 65.
- Deposited: 36,000 euros
- Final amount at 6% return: 101,660 euros
Conclusion: Even though Person B starts only 10 years later, he almost has it at the end 50% less assetsas compound interest has less time to take effect.
Conclusion: Compound interest rewards patience and consistency
Whether you’re saving for retirement or another long-term purpose, compound interest is your greatest ally.
It ensures that your savings multiply over time. Especially at ETF savings plans it is a decisive factor in building up large assets with regular, small amounts. The key is to start early and make your money work for the long term.