$144,573
2.49× your Total Investment
Principal+149.26% gainTotal
Total Contributions
$58,000
Interest Earned
$86,573
Final Balance
$144,573
Contributions
Interest earned
$
%
yrs
$
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Adjust for inflation
- What is compound interest?
- Compound interest is interest calculated on both your initial principal and the interest you have already accumulated. Unlike simple interest, which only earns on the original amount, compound interest earns on a growing base, so your returns accelerate over time.
- Einstein is often (perhaps apocryphally) credited with calling compound interest the eighth wonder of the world. Whether he said it or not, the math backs it up: a $10,000 investment at 7% for 30 years grows to over $76,000 with annual compounding, more than seven times the original amount.
- How does compounding frequency affect my returns?
- The more frequently interest compounds, the more you earn. Monthly compounding slightly outperforms annual compounding, and daily compounding is marginally better still. The difference between monthly and daily compounding is small in practice, but the gap between annual and monthly compounding on a large balance over many years can be meaningful.
- Most savings accounts and bonds compound monthly or daily. For long-term investments, the compounding frequency matters less than the rate itself, focus on maximizing your rate first.
- Why do regular contributions matter so much?
- Regular contributions amplify compounding significantly. Each new deposit you make immediately starts earning compound interest on top of itself. A $200 monthly contribution added to a $10,000 principal at 7% over 20 years results in a final balance nearly double that of a lump sum with no contributions.
- This is why time in the market is so valuable. Starting contributions early, even small ones, gives each dollar more compounding periods. Doubling your contribution amount has almost the same impact as doubling your interest rate over long time horizons.
- What is the Rule of 72?
- The Rule of 72 is a quick mental shortcut to estimate how long it takes for money to double. Divide 72 by your annual interest rate, and the result is approximately the number of years to double. At 7% interest, your money doubles roughly every 72 ÷ 7 ≈ 10.3 years.
- The rule is an approximation, but it is remarkably accurate for rates between 6% and 12%. It works because 72 is close to 100 × ln(2) ≈ 69.3, adjusted upward to make the division cleaner. Use it to quickly sanity-check whether a return rate is realistic for your goals.
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