How Compound Interest Works (With Real Examples)

Compound interest is often called the eighth wonder of the world. Simply put, it is interest that earns interest. When your investment gains are reinvested, they begin generating their own gains, and the growth curve steepens over time.

A useful shortcut is the Rule of 72: divide 72 by your annual return to estimate how many years it takes for money to double. At 8%, money doubles roughly every 9 years — so $10,000 becomes $40,000 in about 18 years without adding another cent.

Time in the market beats timing the market, and it especially beats a late start. Someone who invests $200 a month from age 25 typically ends up with dramatically more than someone who starts at 35, even if the late starter contributes more each month. Run your own numbers with our compound interest calculator to see the curve for your situation.