Compound interest is interest earning interest. It is the reason long-term saving works and long-term debt hurts. The mechanics are simple, but the results feel surprising because growth curves upward rather than in a straight line.
Simple vs compound
With simple interest you earn a fixed amount on the original sum each period. With compound interest, each period's interest is added to the balance, so next period you earn interest on a slightly bigger number. Early on the difference is tiny; over years or decades it becomes the whole story.
How to project it
- Open the compound interest calculator.
- Enter your starting amount, interest rate, and how long you will leave it.
- Add a regular contribution if you make one, and see the projected total and how much of it is interest.
Frequency and rate both matter
Interest that compounds monthly grows a little faster than the same rate compounding yearly, because it starts earning on itself sooner. And because growth is exponential, a seemingly small rate difference — 5% versus 7% — produces a large gap once you stretch the timeline out to decades.
A rough shortcut: divide 72 by the interest rate to estimate how many years it takes money to double. At 6%, that is about 12 years.