· investing, compound interest, savings
Compound Interest Explained (With Real Numbers)
Why time beats amount when it comes to growing money — and how to sanity-check any investment promise with the Rule of 72.
Compound interest means your interest earns interest. It's the reason small, early contributions routinely outperform larger, later ones.
The formula
For a lump sum: FV = P × (1 + r/n)^(n·t), where n is compounding frequency per year. Add regular monthly contributions and growth accelerates further — most people are surprised by how much.
An example worth memorizing
$10,000 at 7% annual return, compounded monthly for 30 years, becomes about $81,000 — no extra deposits. Contribute just $200/month on top and the total crosses $320,000. Contributions, not returns, do most of the heavy lifting over long horizons.
The Rule of 72
Divide 72 by an annual percentage rate to approximate doubling time: at 6%, money doubles roughly every 12 years; at 9%, every 8. It's a fast mental check on any investment pitch — run the exact numbers with our compound interest calculator.