Finance · Quick Answer

What is compound interest?

Compound interest is interest that earns interest. Each period, 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).

How it works

With simple interest, you earn interest only on the original deposit. With compound interest, the interest itself earns interest, producing exponential growth over long periods.

A = P × (1 + r/n)^(n×t)

Where:

P = principal (starting amount)
r = annual interest rate (as a decimal)
n = compounding periods per year
t = number of years

Why compounding frequency matters

$10,000 at 5% for 20 years:

Simple interest: $20,000
Compounded annually: $26,533
Compounded monthly: $27,126
Compounded daily: $27,181

The compounding frequency matters, but the time horizon and rate matter more.

Rule of 72

To estimate how long money takes to double: 72 / annual rate = years to double. At 6%, money doubles in about 12 years.

Run the numbers

All calculators →

Compound Interest Calculator

Calculate how your money grows with compound interest over time. See the power of regular contributions.

Savings Goal Calculator

Calculate how much you need to save monthly to reach a financial goal by a target date.

Investment Return Calculator

Calculate the future value of an investment with regular contributions and compound growth.