Guide · Updated November 2026 · How we check our numbers

Compound Interest Explained Simply

Compound interest means you earn interest on your interest. Over long periods, it is the main reason savings and investments grow faster and faster.

The formula

A = P × (1 + r ÷ n)^{n × t}, where P is the starting amount, r the yearly rate, n how many times a year interest is added, and t the number of years.

Example: $10,000 at 5% compounded monthly for 10 years grows to $16,470.09. With simple interest it would be only $15,000.

APR vs APY

APY includes compounding, so it shows the real yearly return. A 5% rate compounded monthly is a 5.116% APY. When comparing savings accounts, compare APY.

Time matters most

Adding regular deposits makes a huge difference. $5,000 plus $300 a month at 4% grows to about $51,629 in 10 years — of which $41,000 is your own money and the rest is growth. The longer the money stays invested, the bigger the growth share becomes.

The Rule of 72

Divide 72 by the yearly return to estimate how many years it takes to double your money. At 8%, money doubles in about 9 years (exactly 9.01).

Don't forget inflation

If prices rise 3% a year, $1,000 today will buy only about $744 worth of goods in 10 years. Your real return is roughly your interest rate minus inflation.

Try the calculators

This guide is general information, not professional advice.