How Compound Interest Works
Compound interest is often called the eighth wonder of the world. Unlike simple interest which is calculated only on the principal, compound interest is calculated on both the principal and the accumulated interest. This means your money grows exponentially over time — the longer you leave it, the faster it grows.
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Formula
Compound Interest Calculator
Calculate the growth of an investment using compound interest over time.
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Worked Example
Given:
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FAQs
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus all previously earned interest, causing your balance to grow much faster over time.
How does compounding frequency affect growth?
The more frequently interest compounds, the more you earn. Daily compounding produces slightly more than monthly, which produces more than annual compounding. The difference is most significant at higher interest rates.
What is the Rule of 72?
The Rule of 72 is a quick estimate: divide 72 by your annual interest rate to find roughly how many years it takes to double your money. At 6% annual interest, your money doubles in approximately 72 ÷ 6 = 12 years.