Compound Interest and Investing: Why Time Matters

Compound vs. simple interest

Simple interest is earned only on your original principal. Compound interest is earned on the principal plus previously earned interest, so it snowballs — and the longer the time horizon, the larger the gap.

The Rule of 72

A quick estimate: the number of years to double your money is about 72 divided by the annual return. At a 6% return, money roughly doubles in about 12 years.

Regular contributions

Adding a fixed amount every month compounds too. Starting early, even with smaller amounts, usually beats starting later with larger amounts, because early dollars compound the longest.

FAQ

How much does compounding frequency matter?

More frequent compounding (monthly vs. yearly) helps a little, but the time horizon and rate matter far more.

Does this include taxes?

The calculator shows a pre-tax estimate. Taxes and fees would reduce real-world returns.

Related calculators

• Compound Interest Calculator
• Retirement Savings Calculator