See how your money grows with daily, monthly or annual compounding. Compound vs simple interest comparison.
Compound interest is interest calculated not just on your original principal but also on the accumulated interest from previous periods. Over long time horizons, compounding produces returns that dramatically exceed simple interest — the difference between earning interest on your interest versus only on your original deposit.
Understanding compound interest is fundamental to every saving and investment decision: bank fixed deposits, mutual funds, retirement accounts, and even credit card debt all use compound interest math. The compounding frequency (daily, monthly, quarterly, annually) changes the result — more frequent compounding produces higher returns.
A = P \left(1 + \frac{r}{n}\right)^{nt}
Inputs: $10,000 invested at 8% per year, compounded monthly, for 20 years
The Rule of 72 is a shortcut to estimate how long it takes for an investment to double at a given annual return. Divide 72 by the annual interest rate: at 8% your money doubles in about 9 years (72 ÷ 8); at 12% in 6 years; at 6% in 12 years. It works because of compound mathematics and is accurate within 1 year for rates between 4% and 12%.
Yes, but with diminishing returns. Moving from annual to monthly compounding adds noticeable value over long periods. Moving from monthly to daily adds very little. The theoretical maximum is continuous compounding (e^(rt)) but the difference vs daily compounding is in the third decimal place — not worth optimising for.
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