Question 1

What is compound interest?

Accepted Answer

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only earns on the original amount, compound interest allows your money to grow exponentially over time as you earn returns on your returns.

Question 2

What is the Rule of 72?

Accepted Answer

The Rule of 72 is a quick way to estimate how long it takes for an investment to double. Divide 72 by the annual interest rate to get the approximate number of years. For example, at 8% annual return, your money doubles in roughly 72 / 8 = 9 years.

Question 3

How does inflation affect compound interest growth?

Accepted Answer

Inflation erodes the purchasing power of your future dollars. While your investment may grow to a large nominal value, the real (inflation-adjusted) value will be lower. For example, at 3% inflation over 30 years, a dollar today is worth only about 41 cents in today's purchasing power. Always consider real returns when planning long-term.

Compound Interest Calculator

Assumptions

Final Balance

Final Balance (Real)

Total Contributions

Total Interest Earned

Investment Growth

Year-by-Year Breakdown