See how a lump-sum grows over time with compounding.
Compound interest is interest calculated not just on your original principal, but also on the interest that's already accumulated — meaning your money grows faster over time compared to simple interest, where interest is only ever calculated on the original amount. The formula used is A = P(1 + r/n)^(nt), where P is principal, r is the annual rate, n is the compounding frequency per year, and t is time in years.
The compounding frequency matters: for the same annual rate, monthly compounding grows your money slightly faster than annual compounding, since interest is added to the principal more often.
Simple interest is calculated only on the original principal throughout the term. Compound interest is calculated on the principal plus all previously earned interest, so the growth accelerates over time — this difference becomes significant over longer periods.
For short periods or lower rates, the difference is small. Over many years at higher rates, more frequent compounding (monthly vs annually) can add up to a meaningfully larger final amount.
A quick mental shortcut: divide 72 by your annual interest rate to estimate how many years it takes for your money to double. At 8% annual return, money roughly doubles in 9 years (72÷8).