Compound Interest

What Is Compound Interest?

Compound interest is the process where the interest you earn on your investment itself starts earning interest. It’s often called “interest on interest.” This creates a snowball effect that can dramatically grow your money over time.

Why It Matters

Albert Einstein reportedly called it the eighth wonder of the world. Even small amounts saved early can grow into massive sums thanks to compounding.

How It Works

Let’s say you invest $1,000 at a 7% annual return. After the first year, you earn $70, so you now have $1,070. In the second year, you earn 7% on $1,070 = $74.90, ending with $1,144.90. That extra $4.90 is interest on the previous interest. Over 30 years, your $1,000 becomes over $7,600 without any additional deposits.

The Visual

Play with the interactive chart below to see how your money grows over time.

Formula

[ A = P \left(1 + \frac{r}{n}\right)^{nt} ]

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Last verified: July 2026