How compound interest works
Compound interest means you earn interest on your interest. The formula is A = P(1 + r/n)nt — principal P grows at rate r, compounded n times per year for t years. With regular contributions, each deposit starts its own compounding clock, which is why starting early beats contributing more later. The table above splits every year's balance into your money (contributions) and the market's money (interest), so you can see the moment growth overtakes saving.
The Rule of 72
Divide 72 by your rate to estimate doubling time: at 6% money doubles in ~12 years, at 9% in ~8 years. Over a 40-year career that difference compounds into several extra doublings — the single biggest argument for low fees and early starts.
Realistic rates to try
- High-yield savings: 4–5% (2026 rates), compounded daily.
- Bonds / CDs: 4–6%.
- Diversified stock index funds: ~10% long-run average before inflation, ~7% after.
Frequently asked questions
How is compound interest calculated?
A = P(1 + r/n)nt. $10,000 at 7% annually for 10 years = $19,671.51. This calculator also handles monthly deposits, which the simple formula can't.
How long until my money doubles?
Roughly 72 ÷ rate in years (Rule of 72). Check the year-by-year table for the exact year your balance crosses 2× contributions.
Does daily vs monthly compounding matter?
Only slightly — about 0.2% extra per year at 7%. Rate and time dominate.
Is compound interest taxed?
Interest in regular accounts is taxed yearly as income; in 401(k)s/IRAs it compounds tax-deferred or tax-free — one reason retirement accounts outperform taxable ones at the same rate.