| Year | Principal | Interest | Balance |
|---|
| Frequency | Future Value | Interest Earned |
|---|
Compound Interest
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Often described as "interest on interest," it makes your money grow faster than simple interest.
Where: P = Principal, r = Annual rate, n = Compounds per year, t = Years
Simple Interest
Simple interest is calculated only on the original principal amount. It doesn't account for accumulated interest, making it less advantageous for long-term savings but simpler to calculate.
Where: P = Principal, r = Annual rate, t = Years
Rule of 72
The Rule of 72 is a quick way to estimate how long it takes to double your money. Simply divide 72 by the annual interest rate to get the approximate number of years.
Example: At 8% interest, your money doubles in approximately 9 years (72 ÷ 8 = 9).
Inflation Impact
Inflation erodes the purchasing power of your savings over time. A 3% average inflation rate means prices double every 24 years. Your investments need to outpace inflation to grow real wealth.
Real Return = Nominal Return - Inflation Rate