Albert Einstein reportedly called compound interest the “eighth wonder of the world.” Whether he actually said this or not, the concept remains one of the most powerful forces in personal finance.

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 only earns on the principal), compound interest lets your money earn money on its earnings.

The Formula

A = P(1 + r/n)^(nt)

Where:

A = Final amount
P = Principal (initial investment)
r = Annual interest rate (decimal)
n = Number of times compounded per year
t = Number of years

The Power of Time

Consider $10,000 invested at 7% annual return:

Years	Balance	Interest Earned
10	$19,672	$9,672
20	$38,697	$28,697
30	$76,123	$66,123
40	$149,745	$139,745

Your money roughly doubles every 10 years at 7% return (the “Rule of 72”).

Compounding Frequency Matters

The more frequently interest compounds, the more you earn:

Annually: $10,000 at 10% for 10 years = $25,937
Monthly: $10,000 at 10% for 10 years = $27,070
Daily: $10,000 at 10% for 10 years = $27,179

Start Early, Stay Consistent

The single most important factor in compound interest is time. Starting to invest even a small amount in your 20s can result in more wealth than investing larger amounts in your 40s.

Calculate Your Compound Interest

Use our free Compound Interest Calculator to see how your investments can grow over time. You can also try our Savings Calculator to plan regular contributions.