What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal amount, compound interest allows your money to grow faster over time.
The Compound Interest Formula
A = P(1 + r/n)^(nt) where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years.
The Rule of 72
The Rule of 72 is a simple way to estimate how long it will take for an investment to double. Divide 72 by your annual rate of return to get the approximate number of years. For example, at 6% annual return, your investment will double in about 72รท6=12 years.
At 7% return, your investment doubles in about 10.3 years.
How to Read the Comparison Features
- "You vs Average": See whether your assumptions outperform or underperform a U.S. long-term baseline.
- "This Year vs Last Year": Quantify how a rate change shifts your one-year ending value under the same contribution plan.
- Rate and term sliders update charts in real time so you can test scenarios quickly.
Compound Interest Tips
- โStart investing early to maximize compound growth
- โMake regular contributions, even small amounts add up
- โReinvest your earnings to accelerate growth
- โThink long-term for the best results