Compound Interest: What It Is and How to Multiply Your Money

Albert Einstein allegedly called it "the eighth wonder of the world." Warren Buffett attributes 99% of his fortune to this principle. Compound interest is the most powerful financial concept in existence — and it's surprisingly simple.

What is Compound Interest?

It's interest earned on interest you've already earned. Unlike simple interest (where you only earn on your initial capital), compound interest makes your money grow exponentially.

An Example That Explains Everything

Imagine you invest $10,000 at 8% annually:

Year 1: $10,000 × 1.08 = $10,800 (+$800)
Year 2: $10,800 × 1.08 = $11,664 (+$864)
Year 10: $21,589 (+$11,589)
Year 20: $46,610 (+$36,610)
Year 30: $100,627 (+$90,627)

Without adding a single dollar more, your money has multiplied by 10 in 30 years. But the real magic appears when you add monthly contributions.

The Power of Monthly Contributions

If besides the initial $10,000 you contribute $300/month at the same 8% annual rate:

In 10 years: $76,000 (you contributed $46,000, interest gave you $30,000)
In 20 years: $218,000 (you contributed $82,000, interest gave you $136,000)
In 30 years: $542,000 (you contributed $118,000, interest gave you $424,000)

The Rule of 72

Want to know how many years it takes to double your money? Divide 72 by the interest rate. At 8%: 72 ÷ 8 = 9 years to double. At 12%: 72 ÷ 12 = 6 years.

Calculate Your Case

Every situation is unique. Use our compound interest calculator to simulate exactly how much you'll have in the future based on your initial capital, monthly contribution and time horizon.