Compound interest is the mechanism that turns small, regular investments into significant wealth over time. Use the calculator below to model how your investments could grow — then read the explainer for the NZ-specific context.
Compound interest means you earn returns on your returns, not just your principal. $10,000 invested at 7% p.a. for 30 years grows to ~$76,000. Add $200/month and it becomes ~$300,000. Time in the market matters more than timing the market — starting 10 years earlier roughly doubles the outcome.
Compound Interest Calculator
How Compound Interest Works
With simple interest, you earn a fixed return on your original deposit only. With compound interest, you earn a return on your original deposit plus all previously earned returns. The interest compounds — earning interest on interest.
Example: $10,000 at 7% p.a.
| Year | Simple interest balance | Compound interest balance |
|---|---|---|
| 5 | $13,500 | $14,026 |
| 10 | $17,000 | $19,672 |
| 20 | $24,000 | $38,697 |
| 30 | $31,000 | $76,123 |
The difference is dramatic over long periods. This is why starting early matters so much more than the amount you start with.
The Rule of 72
A quick mental calculation: divide 72 by your annual return rate to estimate how long it takes to double your money.
| Return rate | Years to double |
|---|---|
| 4% | 18 years |
| 6% | 12 years |
| 7% | 10.3 years |
| 8% | 9 years |
| 10% | 7.2 years |
A global index fund returning ~7–9% p.a. long-term doubles approximately every 8–10 years.
NZ Investment Returns in Context
What return rate should you use? Depends on the investment:
| Asset type | Historical annual return (NZ) |
|---|---|
| NZ savings account | 2.5–4.75% (2026 rates) |
| Term deposit (12 months) | 3.8–4.8% (2026 rates) |
| NZ shares (NZX 50) | ~7–8% p.a. long-run |
| Global shares (hedged to NZD) | ~8–10% p.a. long-run |
| NZ residential property | ~6–8% p.a. long-run (including rent) |
| KiwiSaver balanced fund | ~5–7% p.a. |
| KiwiSaver growth fund | ~7–9% p.a. |
Past returns don’t guarantee future returns. Use conservative assumptions for long-term projections.
Tax on Investment Returns in NZ
New Zealand taxes investment returns in several ways:
- Interest income: Added to your income, taxed at marginal rate (10.5%–39%)
- Dividend income: NZ dividends come with imputation credits; overseas dividends taxed at marginal rate
- Capital gains: NZ has no general capital gains tax — most long-term share gains are not taxed (exceptions exist for frequent traders and property)
- PIE funds: Returns taxed at your PIR (10.5%, 17.5%, or 28%) — lower than marginal rate for higher earners
- FIF (Foreign Investment Fund) regime: Overseas shares held outside a PIE fund are taxed on 5% of their opening value each year (the fair dividend rate), regardless of actual return
For most NZ investors in index funds via Sharesies, InvestNow, or Kernel, the platform handles PIE tax automatically.
The Power of Starting Early
| Age start | Monthly investment | Total invested | Balance at 65 (7% return) |
|---|---|---|---|
| 25 | $200 | $96,000 | ~$525,000 |
| 35 | $200 | $72,000 | ~$243,000 |
| 45 | $200 | $48,000 | ~$106,000 |
| 55 | $200 | $24,000 | ~$35,000 |
Starting at 25 vs 35 — same monthly amount, 10 extra years — results in a balance more than double. This is compound interest in action.
Frequently Asked Questions
How does compound interest differ from simple interest?
Simple interest only applies to your original deposit. Compound interest applies to your principal plus all accumulated earnings. Over time, compounding creates dramatically larger returns — the difference becomes enormous over 20–30 years.
How often does compound interest compound in NZ?
It depends on the investment. Term deposits and savings accounts typically compound daily or monthly. Share investments compound as dividends are reinvested (if you set up dividend reinvestment). KiwiSaver compounds as returns are added to your unit value.
What is a realistic return rate for a NZ investor?
For a diversified global share index fund: 7–9% long-run (before fees, after currency effects). For KiwiSaver growth funds: 7–9% historically. For balanced funds: 5–7%. For savings accounts and term deposits: 3.5–4.8% currently. Use a conservative rate (6–7%) for long-term projections.
Should I include inflation in my compound interest calculations?
For long-term planning, use a real return (nominal return minus inflation). NZ inflation has averaged ~2–3% p.a. historically, so a nominal 7% equates to roughly 4–5% real return. This gives a more accurate picture of actual purchasing power growth.
Is compound interest available on KiwiSaver?
Yes — KiwiSaver grows via compounding. Your balance earns investment returns, which add to your unit holdings, which then earn further returns. This is why starting KiwiSaver early (or increasing contributions) has a large impact over decades.