Compound Interest Calculator
Calculate how your investments grow over time with compound interest.
Understanding Compound Interest: The Eighth Wonder of the World
Albert Einstein allegedly called compound interest "the eighth wonder of the world," saying "he who understands it, earns it; he who doesn't, pays it." Let's break down this powerful financial concept in simple terms.
What Is Compound Interest?
Compound interest is when you earn interest not only on your initial investment but also on the interest you've already earned. Think of it like a snowball rolling down a hill – as it rolls, it picks up more snow, becoming larger, which in turn helps it pick up even more snow.
Simple Interest Example
Compound Interest Example
The Power of Time
The Rule of 72
To estimate how long it will take your money to double, use this simple formula:
- At 6% interest: 72 ÷ 6 = 12 years to double
- At 9% interest: 72 ÷ 9 = 8 years to double
- At 12% interest: 72 ÷ 12 = 6 years to double
Compounding Frequency
Here's how $10,000 grows at 5% APR over one year with different compounding frequencies:
Maximizing Compound Interest
Time
- Start early
- Be patient
- Stay invested long-term
Interest Rate
- Seek higher returns
- Consider different investment options
- Balance risk and reward
Principal
- Invest as much as possible early
- Make regular contributions
- Reinvest earnings
The Impact of Regular Contributions
Scenario A: One-time Investment
$10,000 invested at 7% for 30 years
Scenario B: Regular Contributions
$10,000 + $200 monthly at 7% for 30 years
Key Takeaway
The difference between scenarios? A whopping $207,259! This demonstrates the incredible power of combining compound interest with regular contributions.