GROWTH BREAKDOWN
Initial investment—
Total contributions—
Interest earned—
Growth over time
The green gap between your contributions and final value is pure compound interest.
Frequently asked questions
What is compound interest?
Compound interest means you earn interest on your interest — not just your original principal. If you earn $800 in interest in year one, year two's interest is calculated on your original investment plus that $800. Over decades, this snowball effect becomes enormous. Einstein reportedly called compound interest the "eighth wonder of the world."
Does compounding frequency matter much?
More frequent compounding produces slightly higher returns, but the difference is modest. On $10,000 at 8% for 30 years: annual compounding yields $100,627; daily compounding yields $111,023 — about 10% more. The rate and time period matter far more than compounding frequency.
What is the Rule of 72?
Divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 8%, money doubles in about 9 years (72 ÷ 8). At 6%, it takes 12 years. It's a quick mental math shortcut that gives surprisingly accurate results for most realistic rates.
What is the effective annual rate (EAR)?
The EAR is the actual annual return after accounting for compounding within the year. A 8% nominal rate compounded monthly has an EAR of about 8.3% — because each month's interest earns interest for the remaining months. The more frequent the compounding, the higher the EAR relative to the stated rate.