Calculate interest earned or owed using either the simple interest formula or compound interest formula. Toggle between modes. Simple interest is used for short-term loans and some savings accounts. Compound interest is used for most investments, savings accounts, mortgages, and credit cards — and is the basis for long-term wealth building.
Where P = principal, r = annual rate (decimal), t = time in years, n = compounding periods per year. Interest earned = A − P.
| Rate | Rule of 72 Doubling | Simple vs Compound (10yr, monthly) |
|---|---|---|
| 2% | 36.0 years | $200 vs $221 on $1,000 |
| 5% | 14.4 years | $500 vs $647 on $1,000 |
| 7% | 10.3 years | $700 vs $1,007 on $1,000 |
| 10% | 7.2 years | $1,000 vs $1,708 on $1,000 |
| 12% | 6.0 years | $1,200 vs $2,308 on $1,000 |
Simple interest is earned only on the original principal. Compound interest is earned on principal plus accumulated interest, so the base grows each period.
Over one year at the same rate the difference is small. Over twenty it is large, and over forty it dominates the outcome entirely.
More frequent compounding produces slightly more growth, but the effect is modest and plateaus quickly. Moving from annual to monthly compounding makes a visible difference; moving from daily to continuous barely registers.
Rate and time matter far more than frequency. It is rarely worth choosing an account on compounding frequency alone.
The nominal rate ignores compounding; APY includes it. When comparing accounts, compare APY — it is the figure that reflects what you actually earn.
On the borrowing side, APR is the analogous figure and includes certain fees as well as interest, which is why a loan's APR can exceed its headline rate.
Divide 72 by the annual percentage rate to approximate how many years until money doubles. At 6%, roughly 12 years. At 9%, roughly 8.
It is an approximation, most accurate for rates in the mid single digits, but it is useful for sanity-checking a projection without a calculator.
The same mechanics that grow savings also grow debt. Credit card balances typically compound daily at high rates, which is why minimum payments extend repayment so dramatically. See Debt Snowball vs Avalanche for how to attack it.