How compound interest works
With compound interest you earn interest on your interest. Each period, the interest earned is added to the balance, and the next period's interest is calculated on that larger amount. Over long periods the effect snowballs: at 7% a year, money roughly doubles every 10 years.
The formula
For a starting balance P, annual rate r compounded n times a year for t years: A = P × (1 + r/n)^(n·t). Regular monthly deposits are added at the end of each month and compound from then on.
The rule of 72
Divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 6%, that is about 12 years.
Compounding frequency
More frequent compounding earns slightly more: 5% compounded monthly is an effective annual rate of about 5.12%. The difference between monthly and daily compounding is very small.
This calculator does not include taxes, fees or inflation, which reduce real returns.