Albert Einstein reportedly called compound interest the eighth wonder of the world. Compound interest earns returns on both your original principal and previously accumulated interest, creating exponential growth over time. Our calculator shows exactly how time, rate, and compounding frequency transform your savings.
A = P(1 + r/n)^(nt), where A is the final amount, P is principal, r is annual interest rate (decimal), n is compounding periods per year, and t is time in years. With regular contributions, the future value of an annuity formula adds those periodic additions.
More frequent compounding means slightly more interest earned each year. Daily compounding produces slightly more than monthly, which produces more than annual. The difference is most significant at higher rates and over longer periods. Effective annual yield (EAY) captures the true annual return.
Divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 6% return, money doubles in roughly 12 years (72 ÷ 6). At 9%, it doubles in about 8 years. It is a quick mental math shortcut.
Simple interest is calculated only on the original principal. Compound interest is calculated on principal plus previously earned interest. Over long periods, compound interest grows far faster—the gap widens significantly after 20-30 years.
Tax-advantaged accounts like 401(k)s and IRAs benefit most because there is no annual tax drag on gains. Index funds, dividend-reinvestment plans (DRIPs), and certificates of deposit (CDs) all use compound growth. Starting early is the single most powerful factor.
Dramatically. Investing $500/month at 7% starting at age 25 yields roughly $1.4 million by age 65. Starting at 35 yields only about $680,000—less than half—despite only 10 fewer years of contributions. This is the core reason time in the market matters so much.