Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the interest that has already been earned. This means your interest earns interest — causing your money to grow at an accelerating rate over time. Albert Einstein reportedly called it the "eighth wonder of the world".
How is compound interest calculated?
The formula is: A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)], where P is the principal, r is the annual rate, n is the number of compounding periods per year, t is time in years, and PMT is the regular contribution per period.
How often should interest compound for the best results?
More frequent compounding results in slightly higher returns. Daily compounding earns marginally more than monthly, which earns more than yearly. However, the difference is smaller than most people expect — the interest rate and time invested matter far more than compounding frequency.
What is the Rule of 72?
The Rule of 72 is a quick mental calculation: divide 72 by the annual interest rate to find roughly how many years it takes to double your money. At 7% per year, your money doubles every 72 ÷ 7 ≈ 10 years. This calculator shows the exact figure.
What interest rate should I use for retirement planning?
The S&P 500 has historically returned approximately 10% per year before inflation, or roughly 7% after inflation. Financial planners commonly use 6–8% as a conservative real-return assumption for long-term retirement projections.