How compound interest works
Enter your starting amount (principal), the annual interest rate, the number of years, and how often interest is compounded. The formula is A = P(1 + r/n)^(nt), where P is the principal, r is the annual rate as a decimal, n is the number of compounding periods per year, and t is the time in years. Compounding more frequently (e.g. daily vs. annually) results in slightly more interest because each period's interest itself earns interest sooner.
Compounding frequency comparison
$10,000 at 7% for 20 years: annually = $38,697 | monthly = $40,064 | daily = $40,177. More frequent compounding makes a meaningful difference over long time horizons. The Rule of 72 is a quick estimate: divide 72 by the annual rate to get the approximate number of years to double your money (e.g. 72 ÷ 7 ≈ 10.3 years).
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus all previously accumulated interest, causing exponential growth over time. For long-term investing, compound interest is significantly more powerful.
What compounding frequency should I choose?
Choose the frequency that matches your actual account or investment. Most savings accounts compound daily. CDs often compound monthly. Bonds typically pay semi-annually. For a general estimate of long-term investment growth, monthly is a reasonable default.