What compound interest is
With compound interest, returns stay invested and earn returns themselves. €10,000 at 5% becomes €10,500 after one year; in the second year the 5% applies to €10,500, not to €10,000.
The gap with simple interest widens over time: over 30 years at 5% the same amount reaches €43,219 with compound interest and €25,000 with simple interest.
What the calculation includes
The result accounts for what really reduces a return.
- Regular contributions: monthly, quarterly or yearly, as in a savings plan, paid at the start of each period.
- Annual costs: the running cost of the fund or ETF is subtracted from the expected return.
- Tax: 26% on the gain, or 12.5% for government bonds and equivalents, charged at the end on the gain only.
- Inflation: the final amount is also shown in today’s euros, to see what it will buy.
How to read the result
Each month the calculation applies the monthly rate equivalent to the annual return you chose: 6% a year is still 6% after twelve months. It is a constant-return simulation, useful for comparing scenarios, not a forecast.
Real markets move up and down: the same average return can give different results depending on when good and bad years fall. The 0.2% yearly stamp duty on securities accounts is not included.
Frequently asked questions
Final amount = starting amount × (1 + rate) to the power of the number of years. With €10,000 at 5% for 10 years: 10,000 × 1.05^10 = €16,288.95.
Divide 72 by the annual return: about 12 years at 6%, about 18 at 4%. This is the rule of 72, a good approximation for returns between 2% and 10%.
At 26% on interest, dividends and capital gains. For Italian government bonds and those of white-list countries the rate is 12.5%.
A piano di accumulo del capitale, a savings plan: you invest a fixed amount at regular intervals instead of a lump sum. It lowers the risk of investing everything at a bad moment.
Sources and method
Figures and rules checked on . The result is an estimate for information and does not replace professional advice.