The Power of Compound Interest: A Complete Guide

What is Compound Interest?

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It’s often called “interest on interest.”

Albert Einstein reportedly called it “the eighth wonder of the world,” saying:

“He who understands it, earns it; he who doesn’t, pays it.”

Simple vs Compound Interest

Type	Formula	Growth
Simple Interest	P × r × t	Linear
Compound Interest	P × (1 + r)^t	Exponential

The Compound Interest Formula

A = P(1 + r/n)^(nt)

Where:
A = Final amount
P = Principal (initial investment)
r = Annual interest rate (decimal)
n = Number of times interest compounds per year
t = Time in years

Real-World Example

$10,000 invested at 7% annual return for 30 years:

Compounding	Final Amount	Total Interest
Annually	$76,123	$66,123
Monthly	$81,165	$71,165
Daily	$81,662	$71,662

The Rule of 72

A quick way to estimate how long it takes to double your money:

Years to double = 72 ÷ Interest Rate

Interest Rate	Years to Double
4%	18 years
6%	12 years
8%	9 years
10%	7.2 years

Key Takeaways

1. Start early: Time is your greatest asset
2. Be consistent: Regular contributions compound faster
3. Reinvest: Don’t withdraw your earnings
4. Be patient: Compound interest rewards long-term thinking

Calculate Your Growth

Use our Compound Interest Calculator to see how your investments can grow over time.