Calculate simple and compound interest for investments and loans. Compare different interest rates, time periods, and see how your money grows over time.
The "Rule of 72" is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.
Albert Einstein reportedly called compound interest the "eighth wonder of the world." The concept dates back to 2400 BC in Mesopotamia, but it wasn't until the 16th century that mathematicians developed formulas to calculate it precisely.
The more frequently interest is compounded, the more you earn. For example, $10,000 invested at 5% for a year would earn $500 in simple interest. If compounded monthly, it would earn $512.67, and if compounded daily, $513.15.
Time is the most powerful factor in compound interest. If two people invest the same amount at the same interest rate, but one starts 10 years earlier, the early starter could have twice as much money at retirement, even if the late starter contributes more overall.