What is compound interest?

Compound interest is the interest you earn on both your original deposit and the interest already added to it. It makes money grow faster over time because each period earns a return on a larger balance.

Section 01

Simple example

$100 at 10% simple interest grows by $10 every year. At compound interest, year one earns $10, year two earns $11 on the new $110 balance, and year three earns $12.10.

Section 02

Why time matters

The biggest gains come in the later years. Starting ten years earlier can double the final balance even with the same monthly contribution.

Section 03

FAQ

What does compounding frequency mean?

Key takeaway

It is how often interest is added to the balance. Monthly compounding grows slightly faster than annual compounding at the same rate.

Does compound interest work against me?

Yes. Credit card debt compounds against you.

Next step · Free

Get help with your debt

See the payoff options that fit your balances, from a vetted debt specialist.

Get debt help options

Takes about 2 minutes · No obligation

How the interest calculator estimates compound growth

Compound interest applies each period’s rate to the starting balance plus previously credited interest. This interest computation differs from simple interest, which calculates interest only on the original principal. A daily compound interest calculator uses more compounding periods than a monthly or annual model, although the practical difference depends on the stated rate, account terms, and length of time.

Enter a starting amount, recurring contribution, assumed return, compounding frequency, and time horizon. The resulting future value calculator estimate is not a guarantee, particularly when modeling an investment with changing returns. For deposit accounts such as high yield savings, compare the annual percentage yield rather than relying only on the stated interest rate. The rule of 72 can provide a rough mental estimate, but a calculator offers more detail.

Common questions

People also search for

Part of the Money & Debt (incl. Student Loans) cluster.

Get help with your debt

Start