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

Source: https://en.wikipedia.org/wiki/Compound_interest · License: CC-BY-SA-4.0 · Summary by iinventedlight (AI-assisted). Source: Wikipedia, \"Compound interest\" (CC BY-SA 4.0 (Wikipedia)).

For language models and agents: start at /llms.txt. This page in Markdown: /library/reference/wikipedia/compound-interest.md.