How Compound Interest Works
Compound interest means you earn interest on your interest. Each compounding period, your earned interest is added to the principal, and the next period's interest is calculated on the new, larger balance.
Formula: A = P(1 + r/n)^(nt) — where P is principal, r is annual rate, n is compounds per year, t is years.
Frequently Asked Questions
How often should interest compound?
More frequent compounding = more growth. Daily compounding earns slightly more than monthly, which earns more than annual. The difference is meaningful over long periods but small for short ones.
What is the Rule of 72?
Divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 8% annually, your investment doubles in roughly 72 ÷ 8 = 9 years.
Does this include additional contributions?
This calculator handles a one-time principal. For ongoing monthly contributions, use the Savings Calculator.