Albert Einstein reportedly called compound interest "the eighth wonder of the world." Whether he actually said it or not, the principle is undeniable: compound interest is the most powerful force in personal finance.
Try our Compound Interest Calculator to see your own growth projections.
What Is Compound Interest?
Compound interest is interest earned on your original investment plus interest you've already earned. Each reinvested dollar earns its own interest, creating exponential growth over time.
Simple interest: Year 1 earns $100. Year 2 earns another $100 on the same principal. Linear growth.
Compound interest: Year 1 earns $100. Year 2 earns interest on $10,100. Year 3 earns interest on even more. Exponential growth.
Real-World Example
Invest $10,000 once, add $500/month, at 7% annual return (S&P 500 historical average):
| Year | Balance | Total Invested | Interest Earned |
|---|---|---|---|
| 5 | $50,040 | $40,000 | $10,040 |
| 10 | $107,570 | $70,000 | $37,570 |
| 15 | $189,233 | $100,000 | $89,233 |
| 20 | $302,370 | $130,000 | $172,370 |
| 25 | $461,108 | $160,000 | $301,108 |
| 30 | $681,876 | $190,000 | $491,876 |
After 30 years, you've invested $190,000 yourself but the interest — nearly $492,000 — does most of the work.
The Rule of 72
The Rule of 72 gives you a quick estimate of how long it takes to double your money: divide 72 by your annual return rate.
- 7% return → 72 ÷ 7 ≈ 10.3 years to double
- 10% return → 72 ÷ 10 ≈ 7.2 years to double
- 5% return → 72 ÷ 5 ≈ 14.4 years to double
The Three Levers of Compounding
- Time: Your biggest advantage every year adds more compounding cycles
- Rate of return: Even 1% more makes a huge difference over decades
- Consistent contributions: Regular additions supercharge growth
Calculate Your Investment Growth
Use our Compound Interest Calculator or our Investment Calculator with inflation adjustments to plan your financial future.