How Compound Interest Actually Works (With Real Examples)

Albert Einstein reportedly called compound interest the "eighth wonder of the world." While it sounds like magic, it's actually just simple math working over long periods of time.

The Simple Concept

Compound interest is interest calculated on the initial principal, which also includes all the accumulated interest from previous periods. You are earning interest on your interest.

The Rule of 72

To find out how long it takes to double your money, divide 72 by your expected interest rate:

• At 7%, your money doubles in about 10 years.
• At 10%, your money doubles in about 7.2 years.

The Cost of Waiting

Starting just 10 years earlier can result in twice as much money at retirement, even if you stop contributing later in life. Time is the most important variable in the equation.

See the true power of time with our Investment Return Calculator.