How Compound Interest Works

Compound interest means earning interest on your interest — not just on your principal. The formula is A = P(1 + r/n)^(nt), where P is principal, r is annual rate, n is compounding periods per year, and t is years. $10,000 at 7% annually for 30 years grows to ~$76,000. The same $10,000 at 7% compounded monthly grows to ~$81,000 just from more frequent compounding.

The Rule of 72

Divide 72 by your expected annual return to estimate how many years it takes to double your money. At 6%, money doubles every 12 years. At 9%, every 8 years. At 12%, every 6 years. This mental shortcut makes it easy to compare investment options and understand the real cost of low-return savings accounts.

Dollar-Cost Averaging

Dollar-cost averaging (DCA) means investing a fixed amount at regular intervals regardless of market price. When prices fall, you buy more shares; when prices rise, you buy fewer. Over time, this averages down your cost basis and removes the psychological pressure of trying to time the market — which even professional fund managers consistently fail to beat.

Compound Interest & Investing Guide: Grow Wealth with Time

How Compound Interest Works

The Rule of 72

Dollar-Cost Averaging

Asset Allocation and Diversification

Related Tools & Calculators

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Investment Return Calculator

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