"Compound interest is the eighth wonder of the world." Whoever said it — the point holds: investing early, even in small amounts, can produce remarkable results. Here's the mechanism.
Simple vs compound interest
- Simple interest is earned only on your original principal.
- Compound interest is earned on your principal plus the interest it has already generated. Your interest starts earning interest.
The difference compounds dramatically over time.
The compound interest formula
A = P(1 + r/n)^(nt)
- A — the future value
- P — the starting principal
- r — the annual interest rate (as a decimal)
- n — number of compounding periods per year
- t — number of years
Add recurring contributions and the growth accelerates further — exactly what our Compound Interest Calculator models for you.
The power of starting early
Consider two investors:
- Alice invests $200/month from age 25 to 35 (10 years, $24,000 total), then stops.
- Bob invests $200/month from age 35 to 65 (30 years, $72,000 total).
At a 7% return, Alice still ends up ahead of Bob at retirement, because her money had an extra decade to compound. Time in the market beats timing the market.
How to use this
Use the calculator to set realistic savings targets, compare accounts, and see the growth difference between monthly and annual contributions. Then check our Savings Calculator and Retirement Calculator to plan the full picture.