How much will $500 a month be worth in 30 years?

At a 7% annual return with $10,000 to start, about $691,000, of which $190,000 is money you put in. Without the $10,000 starting amount it comes to about $610,000.

Why does compound interest grow so slowly at first?

The return is earned on the balance, and early on the balance is mostly your own deposits. In the example of $10,000 plus $500 a month at 7%, the account earns $919 in its first year and $46,374 in its thirtieth.

Is it better to start early or invest more?

Both help, but lost time is harder to make up. In the example, starting ten years later lowers the final balance by $390,299 while saving only $60,000 in contributions.

Investing

How compound interest turns $500 a month into $691,000

Noah is 35, just got a $10,000 bonus, and figures he can put away $500 a month from here on. His question is one a lot of people ask: is it even worth it? Compound interest usually gets explained with a formula that’s easy to skim past, so here’s Noah’s money year by year instead, because the surprising part isn’t the final number. It’s when the money shows up.

What compounding means

Your money earns a return. The next year, the return is earned on your original money and on last year’s return as well. Over a few years the difference is small enough to ignore. Over a few decades it becomes most of the balance.

A worked example

Noah starts with $10,000, adds $500 a month, and earns 7% a year, compounded monthly, for 30 years. The Compound Interest calculator returns:

Balance after 10 years: $106,639
Balance after 20 years: $300,851
Balance after 30 years: $691,150
Money you put in: $190,000
Growth: $501,150, nearly three quarters of the final balance

The last ten years add $390,299, more than the first twenty combined. In the first year the account earns $919 in interest. In the thirtieth it earns $46,374, more than seven times the $6,000 you add that year. That’s the shape to expect: slow for a long time, then fast. The common mistake is to judge it during the slow part and stop. So yes, Noah, $500 a month is very much worth it.

Run your own numbers →Free Compound Interest calculator, no sign-up. Change the amount, rate or years and see the growth split out.

What changes the result

When you start. Wait ten years and invest the same way for 20 instead of 30, and you finish with $300,851. You skipped $60,000 of contributions and gave up $390,299 of balance. Time is the input you can’t buy back later.

How much you add. Doubling the monthly amount to $1,000 gives $1,301,136. That’s a little less than double, because the $10,000 you started with doesn’t change.

The rate. At 5% the same plan ends at $460,807, and at 9% it ends at $1,062,678. This is also why fees matter. A fund that charges 1% a year turns a 7% return into roughly 6%, and at 6% the plan ends at $562,483, which is $128,667 less, paid away a little at a time.

What the math leaves out

Nobody earns a steady 7% every year. Real returns jump around, and when you’re adding money as you go, a bad stretch near the end hurts more than one at the start, because more money is exposed. The figures are also in future dollars: at 3% inflation, $691,150 in 30 years buys about what $285,000 buys today. And taxes depend on the account. Inside a 401(k) or IRA the growth isn’t taxed each year; in an ordinary brokerage account, dividends and realized gains are.

The numbers above come from TheSharpDollar’s Compound Interest calculator with $10,000 to start, $500 a month, 7% compounded monthly and a 30-year horizon. Run it with your own figures.