Beginner explanation
If you put money in a bank and the bank gives you free money every year on top of previous free money — it snowballs! After many years, the extra growth is enormous compared to if you only earned interest on the original amount.
Real-world analogy
Imagine a snowball rolling down a hill. Simple interest is adding a handful of snow each year from the bottom. Compound interest is the snowball rolling — it picks up snow faster and faster because the ball itself gets bigger.
Where it appears in the real world
- 1Retirement funds use compound interest to project 40-year growth forecasts for pension planning.
- 2Credit card debt compounds monthly — a $5,000 balance at 20% APR doubles in under 4 years.
- 3Warren Buffett's wealth is almost entirely the result of compound interest applied over 60+ years.
How to use the visualizer
- 1
Set the principal P — the starting amount you invest or deposit.
- 2
Set the annual interest rate r as a percentage.
- 3
Choose how many times per year interest compounds (n=12 for monthly, 365 for daily).
- 4
Set the number of years t and watch the compound growth bars (green) tower over simple interest bars (indigo).
- 5
The 'extra' field in the result shows how much MORE you earn vs simple interest.
Common questions
What is the difference between compound and simple interest?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus all previously earned interest, so it grows exponentially over time.
What does compounding frequency n affect?
The more frequently interest compounds, the faster your money grows. Daily compounding (n=365) gives slightly more than annual (n=1), but the rate r has a much bigger impact than n.
What is the Rule of 72?
Dividing 72 by the annual interest rate gives the approximate years to double your money. At 8% annual, 72÷8 = 9 years to double — a quick mental shortcut for compound interest.