The compound interest formula
A = P × (1 + r ÷ n)^(n × t)
- A — the amount at the end
- P — the starting amount
- r — the yearly rate as a decimal (7% = 0.07)
- n — times interest is added per year
- t — years
Example
$10,000 at 7% compounded monthly for 20 years grows to about $40,400 without adding anything. Add $200 a month and it reaches about $144,600 — of which $58,000 is your money and about $86,600 is interest. Try your own numbers in the compound interest calculator.
The rule of 72
Divide 72 by the yearly rate to estimate how long money takes to double:
| Rate | Years to double |
|---|---|
| 4% | about 18 |
| 6% | about 12 |
| 8% | about 9 |
Make compounding work for you
- Start early — time does more of the work than the amount.
- Add regularly — even small monthly amounts compound.
- Compare APY when choosing a savings account.
- Clear high-APR debt — compounding works against you there.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is only paid on the original amount. Compound interest is also paid on interest already added, so the balance grows faster each year.
How often is interest compounded?
Savings accounts usually compound daily or monthly, CDs daily or monthly, and many bonds semi-annually. More frequent compounding earns slightly more; the APY already includes it.
Does compound interest work against me on debt?
Yes. Unpaid credit card interest is added to the balance, and you then pay interest on it. That is why high-APR debt grows so quickly.
Written by
Finance Specialist & Editor, VaultlyApps
Researched against primary US sources and reviewed by a finance expert on our team. Written for US readers — general education, not financial, tax or legal advice. Editorial policy · Disclaimer
