Compound Interest FAQ

Compound interest is interest earned on both the original principal and on the interest that has already been added to it. Because each period's interest is calculated on a growing balance, your money grows faster than it would under simple interest, which is calculated only on the principal.

The standard formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate in decimal form, n is the number of compounding periods per year, and t is the number of years. Recurring contributions are layered on top by compounding each contribution at the per-period rate.

The compounding frequency controls how often interest is added back to your balance. More frequent compounding produces a slightly larger final balance at the same nominal rate: daily compounding earns the most, annual the least. The percentage-point difference is small at low rates but grows at higher rates and longer horizons.

The Rule of 72 is a quick way to estimate how long an investment takes to double at a fixed annual return: divide 72 by the interest rate. At 8% per year, your money doubles in roughly 72 / 8 = 9 years. It is an approximation of the exact doubling condition 2 = (1 + r)^t and is most accurate for rates between about 4% and 12%.

Recurring contributions are often the single biggest driver of long-term account growth. Even a modest monthly contribution, compounded over decades, can exceed the final value of the initial principal — because every contribution has its own long compounding runway, not just the original deposit.

No. The calculator applies a deterministic interest rate and produces an exact mathematical projection, but real-world returns vary — especially for investments, whose returns fluctuate year to year. Use these results for planning, and consider modeling several rate scenarios to understand the range of outcomes.