Suppose you start with $10,000.
If the money earns 4% a year, it grows to about $32,434 after 30 years. If it earns 5% a year, it grows to about $43,219.
The rate gap is only one percentage point. The money gap is about $10,785.
| Period | 4% annual return | 5% annual return | Difference |
|---|---|---|---|
| 1 year | $10,400 | $10,500 | $100 |
| 5 years | $12,167 | $12,763 | $596 |
| 10 years | $14,802 | $16,289 | $1,487 |
| 20 years | $21,911 | $26,533 | $4,622 |
| 30 years | $32,434 | $43,219 | $10,785 |
In the first year, the difference is simple. One percentage point on $10,000 is $100.
After that, the gap starts to compound. The account earning 5% does not only earn an extra $100 in the first year. It also starts the next year from a slightly larger balance, and that larger balance earns the next return.
That is why the same one percentage point gap looks different over time. After 10 years, the difference is about $1,487. After 20 years, it is about $4,622. After 30 years, the difference is larger than the original $10,000 principal.
Another way to read the result: after 30 years, the 5% path ends about 33.25% higher than the 4% path.
This kind of calculation is useful because rates are often quoted in a way that feels small. A bank account, bond yield, fund return, or investment assumption may differ by only one percentage point on the page. The final money can still be very different when the period is long.
The calculator link uses steady daily rates equivalent to 4% and 5% annual compounding, so the long-period comparison can be checked with the same compounding logic.