Every month, this calculator adds interest to your current balance — not your original balance — and then adds your monthly contribution on top. That means next month's interest is calculated on a balance that already includes last month's interest. Take the calculator's own defaults: $5,000 to start, $200/month, at 6% for 15 years. You'd end up with $70,434.21 — and of that, only $41,000 is money you actually put in. The remaining $29,434.21 came from interest, which is more than 70% as much as every contribution you made combined.
Run the exact same $5,000 start and $200/month at 6%, but for 25 years instead of 15 (ten more years, nothing else changed):
| Time period | You contribute | Final balance |
|---|---|---|
| 15 years | $41,000 | $70,434.21 |
| 25 years | $65,000 | $160,923.64 |
Ten extra years only costs you $24,000 more out of pocket — but the final balance more than doubles, growing by $90,489.43. Only $24,000 of that extra $90,489.43 is your own money; the other $66,489.43 is compounding having ten more years to work. This is the practical case for starting early: the earliest contributions get the most time to compound, so they end up doing disproportionately more work than the same dollar contributed later.
Take the same $5,000 starting balance and 6% rate over 15 years, but with no monthly contributions at all — just the initial deposit left alone. It grows to $12,270.47 ($7,270.47 of that from interest). Compare that to $70,434.21 with $200/month added in. The rate is identical in both cases; the difference is almost entirely the contributions. It's a useful gut-check whenever a projection looks impressive — worth asking how much of it is the rate doing the work, and how much is simply the money you put in.
Interest is calculated and added to your balance every month, so following months earn interest on the previous interest too — not just on your original balance.
A lot, especially over long periods — steady contributions combined with compounding are usually a bigger driver of the final balance than the interest rate alone.
The math is the same, but real investments fluctuate year to year rather than growing at a smooth, constant rate — this is a simplified projection, not a guarantee.