# Compound interest

Canonical URL: https://olomon.com/financial-glossary/compound-interest-compound-growth
Markdown twin: https://olomon.com/financial-glossary/compound-interest-compound-growth/llms.txt
Category: Wealth Concepts (https://olomon.com/financial-glossary/categories/wealth-concepts)
Also known as: Compound growth, Compounding
Last updated: 2026-05-03

## Definition

Compound interest is interest calculated on both the original principal and the accumulated interest from prior periods, causing wealth to grow at an accelerating rate over time. The same principle — compounding — drives long-term investment growth, debt accumulation, and the time value of money.

## Key takeaways

- Compounding turns small, consistent contributions into large balances over decades.
- Time in the market matters more than timing the market.
- The same compounding can work against you when applied to high-interest debt.
- The Rule of 72: years to double = 72 ÷ annual return rate.

## How Olomon thinks about this

_The following section is Olomon's first-party perspective, informed by our work building a financial system of record. It is intentionally separated from the neutral definitional content above._

Compound growth shows up in your numbers only if you can see the numbers compound. Olomon's continuous net-worth tracking lets households see the trajectory — not just monthly snapshots — and reinforces the discipline that makes compounding work.

## Quick facts

| Fact | Value | As of |
|------|-------|-------|
| Formula | FV = PV × (1 + r)^n | — |
| Rule of 72 | Years to double ≈ 72 / annual return rate | — |
| $10K at 7% for 30 years | ≈ $76,123 | — |
| $10K at 7% for 40 years | ≈ $149,745 | — |

## In-depth definition

Compound growth is mathematics, not magic, but it can feel like magic at long horizons. Albert Einstein is widely (probably apocryphally) quoted calling it the “eighth wonder of the world.” The wonder isn't in any single year — it's in the back half of multi-decade horizons, where the curve bends sharply upward.

## Formula

```
FV = PV × (1 + r)^n
```

Future value (FV) equals present value (PV) multiplied by one plus the periodic rate (r), raised to the number of compounding periods (n).

## Worked example

### $10,000 invested for 30 years at 7%

FV = $10,000 × (1.07)^30 ≈ $76,123. The original $10,000 grew by more than 7× — with no additional contributions.

## Frequently asked questions

### How is compound interest different from simple interest?

Simple interest is calculated only on the original principal. Compound interest is calculated on principal plus previously accrued interest, so the base on which interest is earned grows each period.

## Sources

1. [Compound Interest Calculator — Investor.gov](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator) — Investor.gov (SEC Office of Investor Education and Advocacy). Cited for: Authoritative compounding calculator and explanation.

## Related terms

- [Inflation](https://olomon.com/financial-glossary/inflation)
- [Diversification](https://olomon.com/financial-glossary/diversification)
- [Tax-advantaged account](https://olomon.com/financial-glossary/tax-advantaged-account)
- [Net worth](https://olomon.com/financial-glossary/net-worth)

## Cite this page

Olomon Editorial Team. (2026). Compound interest. Olomon Financial Glossary. https://olomon.com/financial-glossary/compound-interest-compound-growth

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