Retirement & Savings

What Is Compound Interest?

Compound interest is interest calculated on both the original principal and on interest that has already been added. Because each period's interest becomes part of the balance, growth accelerates over time. The more often interest compounds, and the longer the period, the larger the effect.

Compound Interest Formula

A = P × (1 + r/n)^(n × t), where P is the principal, r is the annual rate, n is the number of compounding periods per year, and t is the number of years.

Example

1,000 at 5% compounded annually for 10 years grows to about 1,629, compared with 1,500 under simple interest.

Compounding on Debt

Compounding also applies to many debts, such as credit card balances, which is why unpaid interest can make a balance grow.

🧮 Calculate It Yourself

Put Compound Interest into practice with these free calculators — no sign-up, nothing stored.

📈 Compound Interest Calculator See how your money grows with compound interest and regular monthly contributions. Calculate → 🎯 Savings Goal Calculator Find out how much to save each month to hit your target. Calculate → ⏳ Rule of 72 Calculator A quick shortcut for estimating how fast your money doubles. Calculate →

🔗 Related Terms

Simple Interest APY (Annual Percentage Yield) Rule of 72 Interest Rate

More Retirement & Savings Terms

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.