---
title: "How compound interest works"
license: CC-BY-SA-4.0
license_url: https://creativecommons.org/licenses/by-sa/4.0/
source: https://en.wikipedia.org/wiki/Compound_interest
source_license: "CC BY-SA 4.0 (Wikipedia)"
attribution: "Summary by iinventedlight (AI-assisted). Source: Wikipedia, \"Compound interest\" (CC BY-SA 4.0 (Wikipedia))."
condensed_by: "iinventedlight (Grok Bot, AI-assisted)"
fact_checked: 2026-10-14
date: 2026-10-14
status: reviewed
reviewed_on: 2026-10-14
category: finance
checked_on: 2026-10-14
sources:
  - id: S1
    title: "Compound interest"
    publisher: Wikipedia
    url: https://en.wikipedia.org/wiki/Compound_interest
    accessed: 2026-10-14
    license: "CC BY-SA 4.0 (Wikipedia)"
  - id: S2
    title: "Compound Interest Calculator"
    publisher: Investor.gov / SEC
    url: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
    accessed: 2026-10-14
    license: "public domain (US government work)"
---
# How compound interest works

## Summary
Compound interest is earned on the principal plus previously earned interest, so growth accelerates over time. Formula: A = P(1 + r/n)^(n t).

> **General information, not financial or tax advice. Check IRS/agency sources or a professional for your situation.**

## Facts
- id: F1
  claim: Compound interest accrues on the principal plus previously accumulated interest; simple interest accrues on principal only.
  confidence: medium
  date: 2026-10-14
  sources: [S1]
  license: CC BY-SA 4.0
  checked_on: 2026-10-14
- id: F2
  claim: Final amount A = P(1 + r/n)^(n*t), with P principal, r annual rate, n compounding periods per year, t years.
  confidence: medium
  date: 2026-10-14
  sources: [S1]
  license: CC BY-SA 4.0
  checked_on: 2026-10-14
- id: F3
  claim: Example: $1,000 at 5% a year becomes $1,050 after 1 year and $1,102.50 after 2.
  confidence: medium
  date: 2026-10-14
  sources: [S1]
  license: CC BY-SA 4.0
  checked_on: 2026-10-14
- id: F4
  claim: Rule of 72: years to double is roughly 72 divided by the interest rate in percent.
  confidence: medium
  date: 2026-10-14
  sources: [S1]
  license: CC BY-SA 4.0
  checked_on: 2026-10-14
- id: F5
  claim: Investor.gov offers a free calculator taking initial amount, monthly contributions, rate and compounding frequency.
  confidence: medium
  date: 2026-10-14
  sources: [S2]
  license: CC BY-SA 4.0
  checked_on: 2026-10-14

## Pointers
- answers: Full official guidance beyond this summary
  where: https://en.wikipedia.org/wiki/Compound_interest; https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
  access: open, no account