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🟩 Principal + Contributions 🟦 Interest Earned
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only earns interest on the original amount, compound interest allows your money to grow exponentially over time. The formula is: A = P(1 + r/n)^(nt) where P is principal, r is annual rate, n is compounding frequency, and t is time in years.
See how your savings and investments grow over time with the power of compound interest. Enter your initial deposit, monthly contributions, interest rate, and time period to visualize your wealth growth with detailed year-by-year breakdowns and interactive charts.
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. Unlike simple interest (which only earns interest on the original amount), compound interest accelerates growth exponentially over time.
The formula is: 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 compounding periods per year, and t is the number of years. More frequent compounding (daily vs. annually) results in slightly higher returns due to earning interest on interest more often.
A quick way to estimate how long it takes to double your money: divide 72 by your annual interest rate. At 6% annual return, your money doubles in approximately 12 years (72 divided by 6 = 12). At 8%, it doubles in 9 years. This simple rule helps with quick financial planning.
Time is the most powerful factor in compound interest. Someone who invests $200 per month starting at age 25 will have significantly more at age 65 than someone who invests $400 per month starting at age 35, even though the late starter contributes more total money. Starting early gives your money more time to compound.
Simple interest is calculated only on the original principal amount. Compound interest is calculated on the principal plus all previously accumulated interest. Over time, compound interest generates significantly more returns because you earn interest on your interest.
More frequent compounding produces slightly higher returns. Daily compounding yields more than monthly, which yields more than annually. However, the difference between daily and monthly compounding is usually minimal. Most savings accounts compound daily, while most investments compound monthly or quarterly.
For long-term stock market investments, 7-10% average annual return is historically typical (before inflation). High-yield savings accounts offer 4-5%. Government bonds yield 3-5%. Use conservative estimates (6-7%) for retirement planning to be safe.
Inflation erodes purchasing power over time. If your investments earn 8% but inflation is 3%, your real return is approximately 5%. When planning for long-term goals, use the real (inflation-adjusted) rate of return for more accurate projections.
The Rule of 72 is a quick estimation method: divide 72 by your annual interest rate to find how many years it takes to double your money. At 6% return: 72 divided by 6 = 12 years to double. At 10%: 72 divided by 10 = 7.2 years. It is an approximation but remarkably accurate.