See how your money grows with the power of compounding
| Year | Balance | Interest Earned | Total Invested |
|---|
Compound interest is interest calculated on both the initial principal AND the accumulated interest from previous periods. Albert Einstein reportedly called it the "eighth wonder of the world." The longer you invest, the more powerful compounding becomes — which is why starting early matters so much.
A = P(1 + r/n)^(nt), where A is the future value, P is principal, r is annual interest rate, n is compounding frequency per year, and t is time in years. With monthly contributions, each contribution is also compounded separately.
More frequent compounding means slightly more interest earned. Daily compounding yields the most, but the difference between daily and monthly compounding is usually small. The interest rate and time period matter far more than compounding frequency.
Regular monthly contributions dramatically accelerate growth. For example, investing $5,000 once at 8% for 20 years grows to ~$23,300. But adding just $200/month turns that into over $130,000 — showing the power of consistent contributions.
Compound interest means earning interest on your interest — not just on your original principal. The formula is: A = P(1 + r/n)^(nt) where P = principal, r = annual rate, n = compounding frequency per year, t = years.
Example: $10,000 at 8% for 20 years compounded annually = $10,000 × (1.08)^20 = $46,610. Simple interest would only give $26,000. That $20,610 difference is the power of compounding.
| Frequency | $10,000 at 8% for 10 years | Difference vs Annual |
|---|---|---|
| Annually | $21,589 | — |
| Quarterly | $21,911 | +$322 |
| Monthly | $22,196 | +$607 |
| Daily | $22,253 | +$664 |
Divide 72 by your interest rate to estimate years to double: at 8% → 72 ÷ 8 = 9 years. At 6% → 12 years. At 12% → 6 years. Quick mental math for any investment decision.
Credit card debt at 22% compounds monthly. A $5,000 balance with no payments becomes $6,100 after just one year. The same math that builds wealth destroys it when you're the borrower. See our compound interest guide and loan calculator for detailed breakdowns.
Most savings accounts compound daily. CDs typically compound daily or monthly. Bonds often semi-annually. More frequent compounding = slightly more earnings. $10,000 at 8% for 10 years: annually=$21,589, daily=$22,253.
Divide 72 by your interest rate to estimate how many years to double your money. At 8%: 72÷8=9 years. At 6%: 12 years. At 12%: 6 years. Quick mental math for any investment.
Yes. Credit card debt at 22% compounds daily. A $5,000 balance with no payments becomes ~$6,100 after one year. The same math that builds wealth in savings destroys it in high-interest debt.