Compound interest is earning interest on your interest. Over time, this creates exponential growth rather than linear growth — and it's the reason why starting early matters so much more than contributing large amounts later.
Simple interest pays on your original principal only. If you invest $10,000 at 7% simple interest, you earn $700 per year — every year, forever.
Compound interest pays on your principal plus all previously earned interest. In year 1 you earn $700. In year 2, you earn 7% on $10,700 — that's $749. The difference seems small early on. Over decades, it's enormous.
A = P × (1 + r/n)^(n×t)
A = final amount | P = principal | r = annual rate | n = compounds per year | t = yearsFor annual compounding (n=1) at 7%, $10,000 over 30 years: A = 10,000 × (1.07)³⁰ = $76,123.
| Years | Simple Interest | Compound Interest |
|---|---|---|
| 5 years | $13,500 | $14,026 |
| 10 years | $17,000 | $19,672 |
| 20 years | $24,000 | $38,697 |
| 30 years | $31,000 | $76,123 |
| 40 years | $38,000 | $149,745 |
After 40 years, compound interest produces nearly 4x more than simple interest — from the exact same initial deposit.
Enter your starting amount, monthly contributions, rate of return and time horizon to see how your money grows.
Open Compound Calculator →A quick shortcut: divide 72 by your annual interest rate to find how many years it takes to double your money.
This rule works for debt too. At 18% credit card interest, unpaid debt doubles in just 4 years.
Two investors each contribute $200/month at 7% returns:
By age 65, Investor A has more money — despite contributing for only 10 years. Investor B contributed three times as much but started a decade later. The early years of compounding are disproportionately valuable.