Albert Einstein supposedly called compound interest the eighth wonder of the world. Whether or not he said it, the math is genuinely powerful — and understanding it is the single most useful thing for any saver or investor. This guide explains it simply, and you can model your own numbers with our free compound interest calculator.
Simple interest pays you only on your original deposit. Compound interest pays you on your deposit and on the interest you've already earned — so your balance grows on a growing base. That feedback loop is what makes the curve bend upward over time.
A = P × (1 + r/n)n·t, where P = principal, r = annual rate, n = compounding periods per year, t = years. You don't need to do this by hand — the point is that t (time) is an exponent, which is why time matters more than almost anything else.
Because growth compounds, money invested earlier has far more time to snowball. Consider $10,000 at 7% per year:
| Years | Balance (7%/yr) |
|---|---|
| 10 | ~$19,700 |
| 20 | ~$38,700 |
| 30 | ~$76,100 |
| 40 | ~$149,700 |
The last decade adds more than the first three combined — that's compounding accelerating.
💹 Model your own numbers →A quick mental shortcut: divide 72 by your annual return to estimate how many years it takes your money to double. At 8%, that's about 9 years; at 6%, about 12. It's approximate but surprisingly handy.
For most people, consistent monthly contributions outweigh chasing a slightly higher return. Adding even a small amount every month, compounded over decades, builds wealth far more reliably than a single lump sum left alone.
How often should interest compound? More frequent compounding (daily vs yearly) helps a little, but rate and time matter far more.
What return rate should I assume? Use a realistic long-term figure for your asset mix; many people model 5–7% for diversified portfolios, but adjust to your situation.
Is the calculator's result after tax? No — it shows nominal growth. Subtract your expected tax and inflation for real-terms value.