Compound Interest — FAQ
Frequently asked questions about Compound Interest (P(1+r/n)^nt).
Q1. 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.
Q2. 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.
Q3. 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.
Have more questions? Try the interactive calculator at /tools/compound-interest-visualizer