How compound interest works
With compound interest you earn interest on your interest. Each period, interest is added to the balance, and the next period's interest is calculated on the larger amount.
This calculator adds your deposit at the end of each month. Example: $5,000 plus $200 a month at 7% compounded monthly grows to about $124,380 in 20 years. You put in $53,000 and interest adds roughly $71,380.
Returns on investments are not guaranteed and vary year to year, so treat the result as an illustration, not a forecast.
How $10,000 grows
A one-time $10,000 deposit, compounded monthly, with nothing added:
| Rate | 5 years | 10 years | 20 years | 30 years |
|---|---|---|---|---|
| 4% | $12,210 | $14,908 | $22,226 | $33,135 |
| 6% | $13,489 | $18,194 | $33,102 | $60,226 |
| 8% | $14,898 | $22,196 | $49,268 | $109,357 |
| 10% | $16,453 | $27,070 | $73,281 | $198,374 |
Time matters as much as the rate. At 8%, the last 10 years of a 30-year stretch add more than the first 20 years combined.
The rule of 72
For a quick estimate of how long money takes to double, divide 72 by the yearly rate. At 8%, 72 ÷ 8 = 9 years. The exact answer with monthly compounding is 8.7 years, so the shortcut is close enough for planning. It works best for rates between about 4% and 12%.
Frequently asked questions
What is the rule of 72?
Divide 72 by the yearly interest rate to estimate how many years it takes money to double. At 6% that is about 12 years.
Does compounding frequency matter much?
A little. At 7% for 20 years, $10,000 grows to about $38,697 compounded yearly and $40,387 compounded monthly. The rate and the time matter far more.
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