See the power of compounding over time. Model investments, savings accounts, ETFs, and term deposits with regular contributions.
| Year | Contributions | Interest earned | Balance | Real value |
|---|
Compound interest has two ingredients: an amount that earns a return, and time for that return to itself earn returns. A dollar invested at 8% is worth $1.08 in a year. In year two, the 8% applies to the full $1.08, not to the original $1. Repeat for two decades and the dollar lands above $4.66.
Most Australians first meet compound interest through superannuation. Every salary triggers a Superannuation Guarantee contribution into a fund that earns a return on the running balance — compound interest acting on money you do not notice leaving your pay packet. The same principle drives ETFs, index funds, term deposits, and savings accounts; only the rate, contribution rhythm, and volatility differ.
The two inputs that matter most are the rate of return and the number of years. Doubling either roughly doubles the final balance; doubling both more than quadruples it. The Rule of 72 — divide 72 by your rate to estimate years to double — is the quick sanity check shown on the right.
The first decade of compounding feels disappointingly ordinary. Year five looks like a savings account. Year ten looks marginally better. By year fifteen the balance starts to pull away from a straight line, and by year twenty the curve has bent so far upward that the chart almost looks broken on the right edge.
This is not an artefact. It is the maths. With $500 a month at 8% annual return, the interest earned in years 11–20 is more than five times the interest earned in years 1–10. Same contributions. Same rate. The difference is that years 11–20 are compounding on a base that years 1–10 had to build first.
The practical consequence: small changes early matter more than large changes late. Adding $50 a month at age 30 outperforms adding $500 a month at age 55. This is why financial-literacy material, including ASIC's MoneySmart, repeatedly emphasises starting before optimising.
The headline figure — final balance — is in nominal dollars. That is the dollar amount the account statement will show on the future date, ignoring what those dollars will buy.
The "in today's dollars" figure underneath strips out inflation at the rate set in the inflation field. The default 2.5% is the midpoint of the Reserve Bank's 2–3% target band. The real figure answers a different question: what could that future balance buy at 2026 prices.
For retirement planning the real number is the one that matters, because living costs rise alongside investment returns. The "monthly income" stat applies a 4% drawdown rule to the real balance — a rough rule of thumb that translates a portfolio into a sustainable annual income. It is illustrative, not a guarantee.
This calc is the simplest model that captures the principle. It does not capture:
Use this calc for the principle. Use the super calculator and retirement-income calculator for tax, fees, and drawdown realism.
What return rate should I use?
Long-run Australian equity returns sit roughly in the 7–10% band depending on the period measured. The 8% default is illustrative. Balanced super funds historically land closer to 7%. Historical bands are guides, not commitments.
Does daily compounding really help?
At typical investment rates, the difference between monthly and daily compounding is fractions of a percent over decades. Compounding frequency matters more for high-rate debt than for investment returns.
Should the inflation adjustment be on?
Yes if comparing the future balance to today's living costs. No if comparing it to nominal targets like a fund's stated dollar amount.
If your goal is retirement, the super calculator projects the same compound mechanics including concessional contribution caps and the 15% accumulation tax. The retirement-income calculator then models how that balance translates into income against the age pension means tests. For the inverse case — interest working against you — see how offset accounts actually work.