Compound Interest Explained with Examples (Formula + Table)
Updated October 7, 2026
Compound interest is interest you earn on your original money and on the interest it has already earned. Because each period’s interest is added to the balance, your money grows faster and faster over time. For example, $10,000 at 7% grows to about $20,097 in 10 years, $40,387 in 20 years and $81,165 in 30 years with no extra deposits.
This guide explains how compounding works, gives you the formula, shows examples with monthly deposits and warns you how it can work against you with debt. To test your own numbers, use our compound interest calculator.
What is compound interest?
Imagine you put $1,000 in an account that pays 10% a year. After year one you have $1,100. In year two, you earn 10% on $1,100, not on the original $1,000, so you gain $110 and reach $1,210. In year three you earn $121. The gain grows each year because the earlier interest is now earning interest too.
Compound interest vs simple interest
Simple interest is paid only on the original amount. Compound interest is paid on the original amount plus past interest. On $10,000 at 7% for 20 years, simple interest gives $10,000 + $14,000 = $24,000. Compound interest gives about $40,387. The longer the time, the bigger the gap. You can compare the two with our simple interest calculator.
The compound interest formula
Balance = P x (1 + r)^n + D x ((1 + r)^n – 1) / r
- P is your starting balance.
- D is the amount you add each month.
- r is the interest rate per period (the yearly rate divided by 12 for monthly compounding).
- n is the number of periods (years x 12 for monthly).
If you add no deposits, the formula is simply P x (1 + r)^n. Our calculator assumes monthly compounding and deposits at the end of each month.
Growth table: $10,000 at 7%, no deposits
| Years | Balance |
|---|---|
| 10 | $20,097 |
| 20 | $40,387 |
| 30 | $81,165 |
The second decade adds about $20,300 and the third adds about $40,800, even though you do nothing extra.
The power of monthly deposits
Saving $200 a month at 7% from a zero balance gives roughly:
| Years | You put in | Balance | Growth |
|---|---|---|---|
| 10 | $24,000 | $34,617 | $10,617 |
| 20 | $48,000 | $104,185 | $56,185 |
| 30 | $72,000 | $243,994 | $171,994 |
After 30 years you have paid in $72,000, but the balance is about $244,000. More than two thirds of it is growth.
Why starting early beats saving more later
Take two savers earning 7% a year:
- Sam saves $200 a month for 40 years and pays in $96,000. The balance reaches about $524,963.
- Alex starts 10 years later, saves $300 a month for 30 years and pays in $108,000. The balance reaches about $365,991.
Alex saved more each month and paid in more money, yet ends with about $159,000 less. Those extra ten years of compounding matter more than a bigger deposit. If you want to plan a goal, try the savings goal calculator or the retirement savings calculator.
How the interest rate changes the result
Saving $200 a month for 20 years means $48,000 paid in. The balance depends on the return:
| Yearly return | Balance after 20 years |
|---|---|
| 5% | $82,207 |
| 7% | $104,185 |
| 9% | $133,577 |
Small differences in return, and in the fees you pay, add up to tens of thousands over decades.
Does compounding frequency matter?
A little. Here is $10,000 at 6% for 10 years:
| Compounding | Balance |
|---|---|
| Yearly | $17,908 |
| Monthly | $18,194 |
| Daily | $18,220 |
More frequent compounding helps, but the jump from monthly to daily is small. The yearly rate that includes compounding is called APY in the US or AER in the UK. A 6% rate compounded monthly equals about 6.17% APY. Convert rates with our APR to APY calculator.
Quick shortcut: the Rule of 72
To estimate how long money takes to double, divide 72 by the yearly return. At 6% it takes about 12 years, at 8% about 9 years and at 10% about 7.2 years. Check your own rate with the Rule of 72 calculator.
Compound interest can work against you
The same effect makes debt grow. If you leave $5,000 on a credit card at 22% APR and make no payments, it grows to about $6,218 after one year and about $9,616 after three years. That is why paying down high-interest debt is often a strong move. See how long a balance takes to clear with the credit card payoff calculator.
Realistic expectations
- Returns are not guaranteed. Stock markets can fall for years. A steady 7% is an assumption, not a promise.
- Inflation lowers buying power. See the effect with the inflation calculator.
- Fees and tax reduce growth. Use tax-advantaged accounts if your country offers them.
- Savings accounts differ from investments. A savings account pays a stated rate, while investments rise and fall.
Frequently asked questions
How does compound interest work?
Interest is added to your balance each period, and the next period’s interest is calculated on the larger balance. Over time, this snowball effect speeds growth.
What is the compound interest formula?
Balance = P x (1 + r)^n, where P is the starting amount, r is the rate per period and n is the number of periods. Add a deposit term if you save regularly.
Is compound interest better than simple interest?
For savings, yes, because you earn more. For loans, compound interest costs you more.
How long does it take to double money with compound interest?
Divide 72 by your yearly return. At 7% that is about 10 years.
This article is for information only and is not financial advice. Returns and rates change, so check current figures before you decide.