Compound Interest FAQ

What is compound interest?

Compound interest is interest earned on both your original money and on the interest it has already earned, so each period's growth builds on the last and the balance grows faster the longer you stay invested. Our guide to how compound interest works walks through it with examples.

How is compound interest different from simple interest?

Simple interest pays only on your original amount, while compound interest pays on the whole balance: your original money plus all the interest earned so far. The gap widens with time. $10,000 at 7% reaches $17,000 with simple interest after 10 years but about $19,672 with compounding, and after 30 years it is $31,000 versus about $76,123.

How much difference does starting early make?

A large one. At 7%, $500 a month starting at age 25 grows to roughly $1.2 million by 65, while the same contributions starting at 35 reach only about $570,000. The extra decade of compounding roughly doubles the outcome even though you invest only $60,000 more.

What is the Rule of 72?

The Rule of 72 is a mental shortcut: divide 72 by your annual return to estimate how many years it takes money to double. At 8%, money doubles in about 9 years; at 6%, about 12 years. See the Rule of 72 explained for how accurate it is and where it breaks down.

Does compounding frequency matter much?

Not much. At the same rate, more frequent compounding earns slightly more, but the gap is tiny. $10,000 at 5% for 10 years grows to $16,470.09 compounded monthly and $16,486.65 compounded daily, a difference of about $17. Your rate of return and time horizon matter far more than the schedule, as the daily vs monthly compounding breakdown shows.

What is APY, and how is it different from the interest rate?

APY (annual percentage yield) is what you actually earn in a year once compounding is included, which makes it the honest number for comparing accounts. A 5% nominal rate compounded monthly is a 5.116% APY, and compounded daily it is a 5.127% APY. Because APY already accounts for the frequency, comparing APYs is the only comparison you need.

What return rate should I assume?

The return rate is an input you choose, not a figure this calculator predicts. Our examples use illustrative rates such as 5% to 8% to show how the math behaves, but past results never guarantee future returns, so no rate here is a recommendation. A sensible approach is to model a scenario at one rate and then try a lower rate to see the downside. This is a math tool, not investment advice.

How do monthly contributions change growth?

Dramatically, because each contribution starts its own compounding clock. A one-time $10,000 at 7% grows to about $76,000 in 30 years, but adding just $200 a month turns it into about $319,000 over the same period. Regular contributions keep feeding the curve, which is why consistency matters as much as the rate.

Can compound interest work against me?

Yes. The same math that builds savings also grows debt: a credit card at 24% APR doubles an unpaid balance in about 3 years, and credit cards typically compound daily. Inflation works the same way, since at 3% prices double in about 24 years, which halves the buying power of idle cash.

Is this calculator private?

Yes. Every calculation runs entirely in your browser, and nothing you enter is uploaded, stored, or shared. There is no sign-up and no account, and the tool works the same on any device.