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Examples of compound interest and annual returns

When you have an investment, the value of the asset increases over time by both the original principal increasing in value as well as the previous returns also increasing, and this is what compound growth means. It is arguably the most important concept to know when it comes to investing in stocks, bonds, mutual funds, or even interest bearing accounts such as CDs or bank accounts. We have several examples below showing how it works. As compound interest and annual returns help you build wealth. As the examples show, the earlier you start to invest the better – time is the most important factor when investing and having your money grow.

Compound annual interest and growth rates examples

We have some examples of how annual compound returns work below. It also applies to the growth of interest as well as investments in the stock market. The examples show how quickly money or savings can grow over the years when it is compounded. We have examples that show the benefits of it for younger savers too, including teenagers, high school students, and other children. As the more time that someone has for their money to work for them, the more that money will grow over time. For simplicity sake, we are using compound annual returns.

Investing as an 18 year old teen

In the example below, the total cash outlay starting at age 18 is $53,000 and it turns in $784,000 at end 70. Someone that starts investing as an 18 year old (so in college or maybe high school), and if they invest only $1,000 per year and earn 8% return per year on an annual compound basis, they will have an account worth $780,000 by the time they are 70.

Age New Investment Made January 1 of year Account value after Nw Investment Total account value end of year
18 $1,000.00 $1,000.00 $1,080.00
19 $1,000.00 $2,080.00 $2,246.40
20 $1,000.00 $3,246.40 $3,506.11
21 $1,000.00 $4,506.11 $4,866.60
22 $1,000.00 $5,866.60 $6,335.93
23 $1,000.00 $7,335.93 $7,922.80
24 $1,000.00 $8,922.80 $9,636.63
25 $1,000.00 $10,636.63 $11,487.56
26 $1,000.00 $12,487.56 $13,486.56
27 $1,000.00 $14,486.56 $15,645.49
28 $1,000.00 $16,645.49 $17,977.13
29 $1,000.00 $18,977.13 $20,495.30
30 $1,000.00 $21,495.30 $23,214.92
31 $1,000.00 $24,214.92 $26,152.11
32 $1,000.00 $27,152.11 $29,324.28
33 $1,000.00 $30,324.28 $32,750.23
34 $1,000.00 $33,750.23 $36,450.24
35 $1,000.00 $37,450.24 $40,446.26
36 $1,000.00 $41,446.26 $44,761.96
37 $1,000.00 $45,761.96 $49,422.92
38 $1,000.00 $50,422.92 $54,456.76
39 $1,000.00 $55,456.76 $59,893.30
40 $1,000.00 $60,893.30 $65,764.76
41 $1,000.00 $66,764.76 $72,105.94
42 $1,000.00 $73,105.94 $78,954.42
43 $1,000.00 $79,954.42 $86,350.77
44 $1,000.00 $87,350.77 $94,338.83
45 $1,000.00 $95,338.83 $102,965.94
46 $1,000.00 $103,965.94 $112,283.21
47 $1,000.00 $113,283.21 $122,345.87
48 $1,000.00 $123,345.87 $133,213.54
49 $1,000.00 $134,213.54 $144,950.62
50 $1,000.00 $145,950.62 $157,626.67
51 $1,000.00 $158,626.67 $171,316.80
52 $1,000.00 $172,316.80 $186,102.15
53 $1,000.00 $187,102.15 $202,070.32
54 $1,000.00 $203,070.32 $219,315.95
55 $1,000.00 $220,315.95 $237,941.22
56 $1,000.00 $238,941.22 $258,056.52
57 $1,000.00 $259,056.52 $279,781.04
58 $1,000.00 $280,781.04 $303,243.52
59 $1,000.00 $304,243.52 $328,583.01
60 $1,000.00 $329,583.01 $355,949.65
61 $1,000.00 $356,949.65 $385,505.62
62 $1,000.00 $386,505.62 $417,426.07
63 $1,000.00 $418,426.07 $451,900.15
64 $1,000.00 $452,900.15 $489,132.16
65 $1,000.00 $490,132.16 $529,342.74
66 $1,000.00 $530,342.74 $572,770.16
67 $1,000.00 $573,770.16 $619,671.77
68 $1,000.00 $620,671.77 $670,325.51
69 $1,000.00 $671,325.51 $725,031.55
70 $1,000.00 $726,031.55 $784,114.08
$53,000.00

Investing as a 30 year old

In the example below, the total cash outlay starting at age 30 is $41,000 and it turns in $303,000 at end 70. Someone that starts investing as a 30 year old and if they invest $1,000 per year and earn 8% return per year on an annual compound basis, they will have an account worth $303,000 by the time they are 70. Compare this example to the one in which the compound annual returns started at age 18 above.  This is a great financial literacy lesson that shows the benefit of compound interest from investing early.

Age New Investment Made January 1 of year Account value after New Investment Total account value end of year
30 $1,000.00 $1,000.00 $1,080.00
31 $1,000.00 $2,080.00 $2,246.40
32 $1,000.00 $3,246.40 $3,506.11
33 $1,000.00 $4,506.11 $4,866.60
34 $1,000.00 $5,866.60 $6,335.93
35 $1,000.00 $7,335.93 $7,922.80
36 $1,000.00 $8,922.80 $9,636.63
37 $1,000.00 $10,636.63 $11,487.56
38 $1,000.00 $12,487.56 $13,486.56
39 $1,000.00 $14,486.56 $15,645.49
40 $1,000.00 $16,645.49 $17,977.13
41 $1,000.00 $18,977.13 $20,495.30
42 $1,000.00 $21,495.30 $23,214.92
43 $1,000.00 $24,214.92 $26,152.11
44 $1,000.00 $27,152.11 $29,324.28
45 $1,000.00 $30,324.28 $32,750.23
46 $1,000.00 $33,750.23 $36,450.24
47 $1,000.00 $37,450.24 $40,446.26
48 $1,000.00 $41,446.26 $44,761.96
49 $1,000.00 $45,761.96 $49,422.92
50 $1,000.00 $50,422.92 $54,456.76
51 $1,000.00 $55,456.76 $59,893.30
52 $1,000.00 $60,893.30 $65,764.76
53 $1,000.00 $66,764.76 $72,105.94
54 $1,000.00 $73,105.94 $78,954.42
55 $1,000.00 $79,954.42 $86,350.77
56 $1,000.00 $87,350.77 $94,338.83
57 $1,000.00 $95,338.83 $102,965.94
58 $1,000.00 $103,965.94 $112,283.21
59 $1,000.00 $113,283.21 $122,345.87
60 $1,000.00 $123,345.87 $133,213.54
61 $1,000.00 $134,213.54 $144,950.62
62 $1,000.00 $145,950.62 $157,626.67
63 $1,000.00 $158,626.67 $171,316.80
64 $1,000.00 $172,316.80 $186,102.15
65 $1,000.00 $187,102.15 $202,070.32
66 $1,000.00 $203,070.32 $219,315.95
67 $1,000.00 $220,315.95 $237,941.22
68 $1,000.00 $238,941.22 $258,056.52
69 $1,000.00 $259,056.52 $279,781.04
70 $1,000.00 $280,781.04 $303,243.52
$41,000.00

Investing as a 30 year old

In the example below, the annual investment is $2,000 per year (double the example above). The total cash outlay starting at age 30 is $82,000 and it turns into $606,000 at end 70.

Age New Investment Made January 1 of year Account value after New Investment Total account value end of year
30 $2,000.00 $2,000.00 $2,160.00
31 $2,000.00 $4,160.00 $4,492.80
32 $2,000.00 $6,492.80 $7,012.22
33 $2,000.00 $9,012.22 $9,733.20
34 $2,000.00 $11,733.20 $12,671.86
35 $2,000.00 $14,671.86 $15,845.61
36 $2,000.00 $17,845.61 $19,273.26
37 $2,000.00 $21,273.26 $22,975.12
38 $2,000.00 $24,975.12 $26,973.12
39 $2,000.00 $28,973.12 $31,290.97
40 $2,000.00 $33,290.97 $35,954.25
41 $2,000.00 $37,954.25 $40,990.59
42 $2,000.00 $42,990.59 $46,429.84
43 $2,000.00 $48,429.84 $52,304.23
44 $2,000.00 $54,304.23 $58,648.57
45 $2,000.00 $60,648.57 $65,500.45
46 $2,000.00 $67,500.45 $72,900.49
47 $2,000.00 $74,900.49 $80,892.53
48 $2,000.00 $82,892.53 $89,523.93
49 $2,000.00 $91,523.93 $98,845.84
50 $2,000.00 $100,845.84 $108,913.51
51 $2,000.00 $110,913.51 $119,786.59
52 $2,000.00 $121,786.59 $131,529.52
53 $2,000.00 $133,529.52 $144,211.88
54 $2,000.00 $146,211.88 $157,908.83
55 $2,000.00 $159,908.83 $172,701.54
56 $2,000.00 $174,701.54 $188,677.66
57 $2,000.00 $190,677.66 $205,931.87
58 $2,000.00 $207,931.87 $224,566.42
59 $2,000.00 $226,566.42 $244,691.74
60 $2,000.00 $246,691.74 $266,427.07
61 $2,000.00 $268,427.07 $289,901.24
62 $2,000.00 $291,901.24 $315,253.34
63 $2,000.00 $317,253.34 $342,633.61
64 $2,000.00 $344,633.61 $372,204.30
65 $2,000.00 $374,204.30 $404,140.64
66 $2,000.00 $406,140.64 $438,631.89
67 $2,000.00 $440,631.89 $475,882.44
68 $2,000.00 $477,882.44 $516,113.04
69 $2,000.00 $518,113.04 $559,562.08
70 $2,000.00 $561,562.08 $606,487.05
$82,000.00

A 25 year old with increasing contributions each year

In the example below, the total cash outlay starting at age 25 is $292,000 and it turns into $1.5 million at end 70. If someone starts investing at age 25 (say when they enter the “professional world”), and they invest $600 per year and increase that annual investment by 10% per year, the results are below. This financial literacy example shows the power of compound annual returns. It in an example of how starting with a small annual investment ($600 per year or $50 per month) can also really grow into a significant sum of money if the contributions are increased annually.

Age New Investment Made January 1 of year Account value after New Investment Total account value end of year
25 $600.00 $600.00 $648.00
26 $660.00 $1,308.00 $1,412.64
27 $726.00 $2,138.64 $2,309.73
28 $798.60 $3,108.33 $3,357.00
29 $878.46 $4,235.46 $4,574.29
30 $966.31 $5,540.60 $5,983.85
31 $1,062.94 $7,046.78 $7,610.53
32 $1,169.23 $8,779.76 $9,482.14
33 $1,286.15 $10,768.29 $11,629.76
34 $1,414.77 $13,044.52 $14,088.09
35 $1,556.25 $15,644.33 $16,895.88
36 $1,711.87 $18,607.75 $20,096.37
37 $1,883.06 $21,979.42 $23,737.78
38 $2,071.36 $25,809.14 $27,873.87
39 $2,278.50 $30,152.37 $32,564.56
40 $2,506.35 $35,070.91 $37,876.58
41 $2,756.98 $40,633.57 $43,884.25
42 $3,032.68 $46,916.93 $50,670.29
43 $3,335.95 $54,006.24 $58,326.74
44 $3,669.55 $61,996.28 $66,955.99
45 $4,036.50 $70,992.49 $76,671.89
46 $4,440.15 $81,112.04 $87,601.00
47 $4,884.16 $92,485.16 $99,883.98
48 $5,372.58 $105,256.56 $113,677.08
49 $5,909.84 $119,586.92 $129,153.88
50 $6,500.82 $135,654.70 $146,507.08
51 $7,150.91 $153,657.98 $165,950.62
52 $7,866.00 $173,816.62 $187,721.95
53 $8,652.60 $196,374.54 $212,084.51
54 $9,517.86 $221,602.36 $239,330.55
55 $10,469.64 $249,800.19 $269,784.21
56 $11,516.61 $281,300.81 $303,804.88
57 $12,668.27 $316,473.14 $341,791.00
58 $13,935.09 $355,726.09 $384,184.17
59 $15,328.60 $399,512.78 $431,473.80
60 $16,861.46 $448,335.26 $484,202.08
61 $18,547.61 $502,749.69 $542,969.67
62 $20,402.37 $563,372.03 $608,441.80
63 $22,442.61 $630,884.40 $681,355.16
64 $24,686.87 $706,042.02 $762,525.38
65 $27,155.55 $789,680.94 $852,855.41
66 $29,871.11 $882,726.52 $953,344.64
67 $32,858.22 $986,202.86 $1,065,099.09
68 $36,144.04 $1,101,243.13 $1,189,342.58
69 $39,758.45 $1,229,101.03 $1,327,429.11
70 $43,734.29 $1,371,163.40 $1,480,856.47
$292,711.09

Examples of Magic of Compound Interest and Annual Returns

There are several examples below. We summarized what the total cash expense is of the investor and what that money turns into over the years. Each example shows the power of investing early and ideally increasing that annual investment each year. An important financial literacy skill is math, and using fairly basic math skills it is quick and easy to see how many grows over the years on an annual rate from compound growth. Everyone should start to invest as soon as they can, even students in high school or college and teenagers. Invest early, often, and consistently, and see your financial security increase.

By Jon McNamara