What is Compound Interest?
Interest earned on both your original principal and the interest already accumulated.
Compound interest means your returns earn returns. The more frequently it compounds (annually, quarterly, monthly) and the longer the horizon, the larger the effect — which is why starting early matters so much in investing.
Example
100,000 at 10% compounded annually for 20 years becomes about 672,750.
How compounding works
Compound interest is interest calculated on both your original principal and on the interest already added. The more often it compounds — yearly, quarterly, monthly, daily — the faster the balance grows. The effect is small at first and dramatic over long periods, which is why starting early matters more than investing large amounts later.
The rule of 72, and both directions
A quick shortcut: divide 72 by the annual rate to estimate the years for money to double — about 9 years at 8%. Compounding works powerfully for you inside savings and investments, and just as powerfully against you on credit-card and loan balances, where unpaid interest compounds into a larger debt.