how compound interest works
Compound interest pays on the entire balance, including interest from previous months, and that is what makes the growth curve accelerate over time instead of climbing in a straight line. This calculator simulates an initial deposit, monthly contributions, an interest rate and inflation month by month; this guide explains the formula behind the result and two common traps: confusing a nominal rate with an effective rate, and forgetting that inflation eats into part of what looks like a large final balance.
Out of the R$ 43,676.04 nominal balance, only R$ 4,505.97 remains as real gain after discounting 10 years of accumulated inflation, far less than the R$ 18,676.04 of nominal interest shown at the top.
The gap between 12% (the nominal rate entered) and 12.68% (the year's effective rate) comes only from monthly compounding: January's interest starts earning interest of its own starting in February, and so on.
The monthly rate never changes at any point in the simulation; what changes is the balance it applies to, which grows every month from both the contributions and the interest already accumulated.
Yes. The tool compounds the balance month by month and adds the recurring contribution every period, which makes it much more useful for real accumulation planning than a simple lump-sum-only model.
Because compound interest applies to the accumulated balance, not to each contribution in isolation. A R$ 200.00 contribution made in month 1 has almost ten years left to earn before the simulation ends; the same contribution made in month 119 has only one month left. It is that difference in time exposure, not the rate, that makes the monthly interest grow across the horizon.
Not exactly. When the calculator receives an annual rate, it divides it by twelve to find the monthly rate (the nominal-rate convention); compounded across twelve months, the year's effective result ends up a bit above the number entered, as shown by the example where a 12% nominal rate becomes a 12.68% effective one.
It separates the nominal balance, the number growing on screen, from the real balance, what that money can actually buy after discounting the loss of purchasing power. The calculator converts the annual inflation entered into an equivalent monthly rate and divides the accumulated balance by that factor every month.
Up to 80 years, the equivalent of 960 months, more than enough to simulate retirement accumulation or any long-term horizon common in personal financial planning.
⚠️ Educational simulation with monthly compounding. It does not replace portfolio advice, suitability review or net return calculations with real taxes and fees.
Mathematical simulation with monthly compounding and recurring contributions. It does not include income tax, IOF, administration fees, custody fees or slippage.
Portfolio growth
Breakdown
| Year | Invested | Return this year | Balance | Real value |
|---|---|---|---|---|
| 1 | R$16,000.00 | R$1,609.50 | R$17,609.50 | R$16,851.20 |
| 2 | R$22,000.00 | R$2,574.58 | R$26,184.08 | R$23,977.55 |
| 3 | R$28,000.00 | R$3,662.05 | R$35,846.13 | R$31,411.84 |
| 4 | R$34,000.00 | R$4,887.44 | R$46,733.56 | R$39,188.96 |
| 5 | R$40,000.00 | R$6,268.24 | R$59,001.80 | R$47,346.06 |
| 6 | R$46,000.00 | R$7,824.16 | R$72,825.96 | R$55,922.74 |
| 7 | R$52,000.00 | R$9,577.41 | R$88,403.36 | R$64,961.31 |
| 8 | R$58,000.00 | R$11,553.01 | R$105,956.38 | R$74,506.95 |
| 9 | R$64,000.00 | R$13,779.17 | R$125,735.55 | R$84,608.01 |
| 10 | R$70,000.00 | R$16,287.67 | R$148,023.21 | R$95,316.24 |
Return this year = interest generated within that year on the accumulated balance.
Local browser-based simulation. This is not investment advice.