Take a $10,000 starting deposit, $500 added every month, a 6 percent annual return, and a 20-year horizon. The monthly rate is 6 percent divided by 12, which is 0.5 percent, over 240 months. The starting deposit grows on its own to about $33,102. The stream of $500 monthly contributions, each compounding until the end, grows to about $232,176. Together the balance reaches roughly $265,278. Of that, only $130,000 is money you put in, the initial $10,000 plus $500 times 240 months, so about $135,278 is compound growth. The growth slightly exceeds the contributions over this horizon, which shows why starting early matters.
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Amount
How it is calculated
The projection combines two standard formulas. The initial lump sum grows by the future-value-of-a-single-sum rule, the deposit times one plus the monthly rate raised to the number of months. The regular contributions grow by the future-value-of-an-annuity rule, paid at the start of each month, so the series factor is multiplied by one extra period of growth. The monthly rate is the annual return divided by 12, and the number of periods is the years times 12. Total contributed is simply the initial deposit plus each monthly payment, and interest earned is the final value minus what you put in. The model assumes a steady return and ignores tax, fees, and inflation, so treat it as a clean projection rather than a guarantee.
Frequently asked questions
Tax on interest?
Bank interest fully taxable at marginal rate. Inside Super, taxed at 15%. ETF dividends often franking-credit eligible, more efficient.
How does compound interest work?
Compound interest means you earn returns on both your original deposit and all previously earned interest. The more frequently interest is compounded, the faster your balance grows. Monthly compounding, which this calculator uses, is standard for most Australian savings accounts and term deposits.
What is a realistic annual return for Australian investors?
Australian high-yield savings accounts typically offer 4 to 5 percent per year as of 2025 to 2026. Diversified share portfolios, such as those tracking the ASX 200, have historically returned around 8 to 10 percent per year before fees and inflation. Term deposits from major Australian banks generally sit in the 4 to 5 percent range for one-year terms.
Does the ATO tax compound growth inside superannuation differently?
Yes. Investment earnings inside a complying superannuation fund are taxed at a maximum of 15 percent during the accumulation phase, which is well below most individual marginal rates. Once you move your super into a retirement-phase pension account, earnings are generally tax-free up to the transfer balance cap, which is $1.9 million for the 2025 to 2026 financial year.