The Power of Compounding: A Detailed Guide
Discover how your money can grow exponentially over time by earning interest on your interest.
What is Compound Interest?
Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. In simple terms, it's "interest on interest." This concept is a fundamental principle of long-term investing and is often described as one of the most powerful forces in finance.
Unlike simple interest, which is calculated only on the principal amount, compound interest allows your wealth to grow at an accelerating rate. The longer your money is invested, the more significant the effect of compounding becomes.
The Power of Regular Contributions
While a one-time initial investment can grow significantly over time, the true power of compounding is unleashed when you add regular contributions. By consistently investing new money, you not only allow your existing principal to grow but you also give your new contributions the opportunity to start compounding. This combination of existing wealth growing and new wealth being added creates a powerful snowball effect.
For example, imagine you start with a zero balance and invest $50 weekly. With a 7% annual return over 10 years, the invested amount alone would be $26,100. The calculator below, which uses a precise daily simulation, shows this portfolio would grow to an impressive $37,821. This means your portfolio earned over $11,721 just in growth, showcasing the incredible potential of consistent, disciplined investing.
Compound Interest Calculator
Calculations assume interest is compounded daily and contributions are made at the beginning of each period.
Calculate Your Future Value
Projected Growth
- Final Amount: $0.00
- Total Invested Principal: $0.00
- Portfolio Growth: $0.00