NEW! Try my new interactive bond interest calculator. It does the same calculations as the graph below, but for any number of years, and for any interest rate. Then come back to this post; graphs are still better for seeing the big picture.
Because stock market results are not consistent, for stock market results see the variability of 5-year stock market returns instead.
Approximates Results from the Calculator/SpreadsheetThe interactive bond calculator will give you precise results. However, since the calculator may not work in some browsers, I'm providing this graph as a way to approximate the results.
What Will my Bond or CD be Worth in 5 Years?
The graph above (click to expand) shows how rapidly a bond or CD of any denomination will grow in five years. Given an interest rate, indicated on the horizontal axis, the "multiplier" on the vertical axis tells you what your investment will be worth in 5 years (assuming earnings reinvested each year, and no taxes). The multiplier is the same regardless of how much money you invest. For example,
a multiplier of 2 means that a $5,000 investment would grow to ($5,000 x 2=) $10,000 in five years.
What Will a $5,000 Bond or CD be Worth in 5 Years at 10%?To answer this question, find 10% on the horizontal axis. Ten percent intersects the red line on the graph at 1.6, so the multiplier is about 1.6. Therefore, $5,000 at 10% for 5 years is approximately ($5,000 x 1.6=) $8,000 (A more precise answer, using the spreadsheet, is $8,053)
What Will a $20,000 CD or Bond Grow to in 5 Years at 2%?Find 2% on the horizontal axis. The multiplier looks to be about 1.1. So, $20,000 at 2% for 5 years is approximately ($20,000 x 1.1=) $22,000 (More precisely, $22,082).
What Rate do I Have to Earn to Grow $50,000 to $100,000 in 5 Years?$100,000 is 2 times $50,000. So, you want to know what interest rate will give you a multiplier of two. Find 2 on the vertical axis and you'll see that it intersects the graph line at about 15% (it's actually 14.9%).
What Will a $25,000 Bond or CD be Worth in FIFTEEN Years at x%?Note that we can also easily approximate the results for multiples of 5 years. For example, from above we know that for 5 years the 2% multiple is about 1.1. Therefore, at the end of 5 years, $25,000 will grow to approximately ($25,000 x 1.1=) $27,500. And, $27,500 invested at 2% for the second 5 years would be about ($27,500 x 1.1=) $30,250. At the end of the third 5-year period we'd calculate (30,250 x 1.1=) $33,275. Alternatively, you could have calculated the 15-year multiple directly as 1.1 x 1.1 x 1.1 = 1.331, and multiplied 1.331 times $25,000 to get $33,275. (Reminder: these are still approximations; the actual number is $33,647).
What Will Your Bond be Worth in 25-35 Years at x%?Finally, for longer periods you can combine the results from the above graph with those from the 10-year graph. For example, from What Will Your Bond/CD be Worth in 10 Years we know that the 30-year multiple for 10% bonds is about 17.576. Since we know the 5-year 10% multiple is about 1.6, it follows that the 35-year multiple is about (17.576 x 1.6=) 28.12. Therefore, at 10% a 35-year $10,000 bond would be worth ($10,000 x 28.12=) $281,120. (Spreadsheet result is $281,024)
Inflation-Adjusted Returns: Estimating the Impact of Inflation on Your Purchasing PowerHow much you'll actually be able to buy with those dollars in 5 years is a different, but very important, question. The impact of compounding is the same whether it is benefiting you or working to your detriment. As a result, you can estimate the purchasing power of your matured bond/CD by reducing your nominal return by your expectation for inflation. For example, if inflation averages 3%/year, a 5% 5-year CD will yield an after-inflation return of 2%. Using the 2% multiple of 1.1, we can calculate that buying a $20,000 CD would, 5 years later, result in your having purchasing power equivalent to $22,000 in today's dollars; you'd be able to buy what would today cost you about $22,000.
Related PostsWhat Will My Bond/CD be Worth in 10 Years?: similar graphs to this post. Will normally give more accurate results for 10 years, and multiples of 10 years.
Inflation-Adjusted Treasury Note Returns: a look at how inflation impacts returns.
Compound Growth Rate Spreadsheet: More capabilities than the calculator, but requires spreadsheet software.
Bonds and CDs have predictable returns. The stock market is more variable. For insight into historical stock market returns, see:
The Variability of 5-Year Stock Market Returns, or
The Variability of 10-Year Stock Market Returns.
The Declining Value of the U.S. Dollar another look at the impact of inflation.
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This work is licensed under a Creative Commons Attribution 3.0 unported license. Last modified: 3/10/2013