See how your money grows with the power of compounding interest over time.
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," compounding makes your money grow at an accelerating rate. Albert Einstein allegedly called it "the eighth wonder of the world."
Simple interest is calculated only on the original principal. If you invest $10,000 at 7% simple interest for 10 years, you earn $7,000 in interest ($700/year × 10).
Compound interest recalculates on the growing balance. The same $10,000 at 7% compounded annually for 10 years grows to $19,671.51 — earning $9,671.51 in interest. That's $2,671 more than simple interest!
A quick way to estimate how long it takes to double your money: divide 72 by the annual interest rate. At 7%, your money doubles in approximately 72/7 = 10.3 years.
More frequent compounding leads to slightly higher returns. $10,000 at 7% for 10 years: