Guide · 7 min read
What Monthly Deposits Do to Compound Growth
Compound growth rewards two things: time and consistency. The contribution you make in year one works for twenty years; the one in year nineteen works for one.
On $5,000 plus $500 a month at 7%, you contribute $125,000 over twenty years and end with $280,657. More than half the result is growth you never deposited.
Start with $5,000 and add $500 a month for twenty years at a 7% annual return, compounded monthly. The contributions total $125,000. The balance at the end is $280,657.
That means $155,657 — 55% of the final balance — is growth. You never deposited it. It came from the existing balance earning a return, and from that return earning a return in turn.
The same $5,000 with no deposits
Leave the opening balance alone for twenty years and it becomes $20,194 — a multiple of 4.04×. That is compound growth in its purest form, and it is also why the opening balance is a poor proxy for what someone will end up with.
The $500 a month does far more work than the $5,000 does. Over the same twenty years it turns a $20,194 result into $280,657.
What the first decade does
Cut the horizon in half to ten years and the same contributions produce $96,591 on $65,000 deposited — $31,591 of growth, or 33% of the balance.
The growth share rises with time. At ten years it is a third; at twenty it is more than half. This is why starting a decade earlier beats contributing more aggressively for a shorter period, and why the early years feel unrewarding: they are.
The assumptions that make this optimistic
None of that makes the projection useless. It makes it a ceiling rather than a forecast — a figure that tells you whether a plan is plausibly sufficient, not what will actually happen.
- A steady 7% every year. Real markets do not deliver this — they deliver averages with violent variation around them.
- Deposits at the end of each month, which is the more conservative of the two common conventions and the one this calculator uses.
- No fees, no taxes, no inflation. A 0.5% annual fee compounds just as relentlessly as the return does, in the wrong direction.
- No interruption in contributions. A gap of a year is a year of missed compounding at every point thereafter.
Frequently asked questions
Should deposits go in at the start or end of the month?
End of month is the conservative assumption and the one used here. Depositing at the start earns one extra month of growth per contribution, which over twenty years is a noticeable difference — but the conservative figure is the safer one to plan against.
Is 7% a reasonable long-run assumption?
It is close to the long-run nominal return of a diversified US stock portfolio, which is why it is used as a default. It is not a guarantee, and a plan that only works at 7% has no margin for the outcome being 5%.
Does compounding monthly versus annually matter much?
Less than people expect. The difference at 7% over twenty years is well under one percent of the final balance. The deposit schedule matters far more.