Compound Interest Explained Simply

Published on April 28, 2026

Compound interest is often called the "eighth wonder of the world." But what is it exactly, and why is it so powerful for your finances? Simply put, compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.

Simple vs. Compound Interest

Simple interest is only paid on the original amount you invest. Compound interest, however, pays you interest on your interest. Over time, this creates a snowball effect that can turn small regular savings into a massive fortune.

The Rule of 72

A quick way to see the power of compounding is the Rule of 72. Divide 72 by your annual interest rate to find out approximately how many years it will take for your money to double. For example, at a 6% return, your money doubles every 12 years.

Want to see it in action for your own savings?