Compound Interest — What It Is and How to Calculate
Compound interest concept, formula, difference from simple interest and its real impact on investing.
Lale Dijital
What Is Compound Interest?
Compound interestis the process where earned interest is added to the principal, so subsequent periods earn interest on both the original capital and the accumulated interest — "interest on interest."
Formula
A = P × (1 + r/n)^(n×t)
- A: Final amount
- P: Principal
- r: Annual rate (decimal)
- n: Compoundings per year
- t: Number of years
Simple vs Compound
100,000 TL invested at 40% annual rate for 10 years:
| Method | After 10 Years |
|---|---|
| Simple | 500,000 TL |
| Compound (annual) | 2,892,546 TL |
| Compound (monthly) | 5,351,249 TL |
Rule of 72
Quick estimate of doubling time:
Years to Double ≈ 72 / Rate (%)
At 20% annual return, money doubles in roughly 3.6 years.
Calculate Yours
Use our investment calculator to model different rates, durations and monthly contributions.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest applies only to the principal. Compound interest adds each period's interest back to the principal, so future interest is earned on both principal and accumulated interest.
What is the compound interest formula?
A = P × (1 + r/n)^(n×t). A: final amount, P: principal, r: annual rate, n: compoundings per year, t: years.
Why did Einstein call compound interest the 'eighth wonder'?
Over long periods, compound interest produces exponential growth. Even small initial capital can reach large sums given enough time.
How does compounding frequency affect returns?
More frequent compounding (daily > monthly > yearly) increases total return, though the difference is marginal.