How does compound interest work?

Compound interest means you earn interest on both your original principal and on the interest already accumulated. For example, €1,000 at 5% annual compound interest grows to €1,276 after 5 years — compared to €1,250 with simple interest. The more frequently interest compounds, the faster your money grows.

What is the difference between compound and simple interest?

Simple interest is calculated only on the original principal: Interest = P × r × t. Compound interest is calculated on the principal plus all previously earned interest. Over long periods, the difference is dramatic — €10,000 at 6% simple interest for 30 years gives €28,000, while compound interest gives €57,435.

How often should interest compound for the best return?

The more frequently interest compounds, the higher the effective return. Daily compounding produces slightly more than monthly, which produces more than annual. The difference is small for modest rates — at 5%, daily compounding yields an effective annual rate of 5.127% versus 5.0% for annual compounding.

What is the Rule of 72?

The Rule of 72 is a quick estimate of how long it takes to double your money: divide 72 by the annual interest rate. At 6%, your money doubles in approximately 12 years (72 ÷ 6 = 12). At 9%, it doubles in 8 years. It works best for rates between 4% and 15%.

How does inflation affect compound interest returns?

Inflation erodes the real value of your returns. If your investment earns 6% but inflation is 2.5%, your real return is approximately 3.5%. Our compound interest calculator includes an inflation adjustment so you can see the true purchasing power of your future savings.

📈 Compound Interest Calculator

See how your savings or investments grow over time with the power of compounding. Includes inflation adjustment and regular contribution modelling.

Initial Investment (€)

Monthly Contribution (€)

Annual Interest Rate (%)

Time Period (years)

Compounding Frequency

Inflation Rate (%) — optional

⚠️ For illustrative purposes only. Investment returns are not guaranteed. Capital is at risk. Past performance does not predict future returns. Not financial advice.

Understanding Compound Interest

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Albert Einstein reportedly called it the "eighth wonder of the world" — and the maths backs that up.

The formula is: FV = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)] where P = principal, r = annual rate, n = compounding frequency, t = time in years, and PMT = regular payment.

Daily vs Annual Compounding

The more frequently interest compounds, the faster your money grows. A 7% rate compounded daily yields an Effective Annual Rate (EAR) of 7.25%, versus exactly 7% compounded annually. Over 20 years on €10,000, that difference compounds into thousands of euros.

The Rule of 72

Divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 7%, your investment doubles roughly every 10.3 years.

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Important Note: This tool is intended to provide estimates and should not be used as a substitute for professional advice. Information generated by these calculators may be incomplete and does not account for all individual circumstances. Always seek the counsel of a certified expert (such as a financial advisor, healthcare provider, or licensed engineer) before taking action based on these results.

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