A worked example
$10,000 at 5% for 10 years comes to exactly $15,000 with simple interest, but about $16,289 compounded annually — compounding alone is worth roughly $1,289 here, on identical principal, rate and time.
Frequently asked questions
Why isn't the difference bigger over just a few years?
Compounding needs time to build momentum — interest has to earn interest of its own, which takes several cycles before it becomes a large share of the total. The gap between simple and compound interest grows much faster in later years than in early ones.
Is compound interest always better for me?
It's better when you're saving or investing — your money earns interest on its own interest. It's worse when you're borrowing, since you owe interest on previously accrued interest too, which is part of why credit card debt can grow so quickly.
This calculator provides estimates for general informational purposes only and is not financial advice.