Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, it grows exponentially — the longer the time period, the more dramatically it compounds.
What is the compound interest formula?
A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate as a decimal, n is the number of times interest compounds per year, and t is the time in years.
How much does $1,000 grow at 7% for 30 years?
$1,000 at 7% annual interest compounded monthly for 30 years grows to approximately $8,116. That is $7,116 in total interest earned on a $1,000 investment.
What is the difference between annual and monthly compounding?
Monthly compounding applies interest 12 times per year, while annual compounding applies it once. More frequent compounding means slightly more interest earned. For example, $1,000 at 5% for 10 years: annually = $1,628.89, monthly = $1,647.01.
What is the Rule of 72?
The Rule of 72 is a shortcut to estimate how long it takes to double your money. Divide 72 by the annual interest rate. For example, at 6% interest, your money doubles in roughly 72 ÷ 6 = 12 years.