What is compound interest?

Compound interest means you earn interest on your principal plus on previously accumulated interest. This creates exponential growth. Simple interest only earns interest on the original principal.

What is the compound interest formula?

A = P times (1 + r/n)^(n times t), where A is the final amount, P is the principal, r is the annual rate as a decimal, n is compounding periods per year, and t is time in years.

How often should interest compound for best returns?

More frequent compounding means slightly more interest earned. In practice the difference between daily and monthly compounding is small. The interest rate matters far more than compounding frequency.

What is the Rule of 72?

Divide 72 by the annual interest rate to estimate doubling time. At 6% annual return, your investment doubles in approximately 12 years (72 divided by 6). It is a quick mental math approximation.

Compound Interest Calculator — Investment

Year	Value	Interest
1	10,830	830
2	11,728.88	1,728.88
3	12,702.37	2,702.37
4	13,756.66	3,756.66
5	14,898.46	4,898.46
6	16,135.02	6,135.02
7	17,474.22	7,474.22
8	18,924.57	8,924.57
9	20,495.3	10,495.3
10	22,196.4	12,196.4

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The power of compounding over time

The most important factor in compound growth is time, not the interest rate. Starting to invest at 25 vs 35 can mean twice the final portfolio value at retirement with identical contributions and rates, because each additional year multiplies the entire accumulated balance.

At 7% annual return, $10,000 becomes approximately $76,000 in 30 years and $196,000 in 45 years. The extra 15 years more than doubles the outcome. This is the core reason financial advisors emphasize starting early.

Compounding frequency: how much does it matter?

Daily compounding earns more than monthly, which earns more than annual compounding, but the differences are smaller than most people expect. On $10,000 at 6% for 10 years: annual compounding yields $17,908; monthly yields $18,194; daily yields $18,221. The difference between daily and monthly is just $27 over 10 years.

What matters far more is the interest rate and investment horizon. Choosing a 7% return compounded annually over a 6% return compounded daily is overwhelmingly the better decision.

Frequently asked questions

What is compound interest?: Compound interest means you earn interest on your principal plus on previously accumulated interest. This creates exponential growth. Simple interest only earns interest on the original principal.
What is the compound interest formula?: A = P times (1 + r/n)^(n times t), where A is the final amount, P is the principal, r is the annual rate as a decimal, n is compounding periods per year, and t is time in years.
How often should interest compound for best returns?: More frequent compounding means slightly more interest earned. In practice the difference between daily and monthly compounding is small. The interest rate matters far more than compounding frequency.
What is the Rule of 72?: Divide 72 by the annual interest rate to estimate doubling time. At 6% annual return, your investment doubles in approximately 12 years (72 divided by 6). It is a quick mental math approximation.