How Compound Interest Works - Simple Examples

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The idea

$10,000 at 7% earns $700 in year one. In year two it earns 7% on $10,700 = $749, and so on. After 10 years it's about $19,670 without adding anything.

Why starting early matters

Adding $200 a month at 7% for 30 years grows to roughly $244,000 from $72,000 of contributions. Waiting 10 years and saving for 20 gives about $104,000 from $48,000.

The rule of 72

Divide 72 by the interest rate to estimate how many years money takes to double: at 6%, about 12 years; at 9%, about 8.

Run your own numbers

The Compound Interest Calculator takes a starting amount, monthly contribution, rate, years and compounding frequency, and shows the final balance, contributions and interest earned.

Frequently asked questions

Is this financial advice?

No – real returns vary; talk to a licensed adviser.

Monthly or yearly compounding?

More frequent compounding grows slightly faster.

Does inflation matter?

Yes – subtract expected inflation from the rate for a 'real' picture.