See the incredible power of compounding — watch your money grow year by year.
Albert Einstein reportedly called compound interest "the eighth wonder of the world." Whether or not he said it, the math is undeniably powerful. Compound interest means you earn interest not just on your original investment, but on all the interest you've already accumulated — a snowball rolling downhill.
The more frequently interest compounds, the faster your money grows. Daily compounding produces slightly more than monthly, which produces more than annual. The difference is captured by the Effective Annual Rate (EAR):
EAR = (1 + r/n)ⁿ − 1
At 8% nominal rate: Annual = 8.00%, Monthly = 8.30%, Daily = 8.33%.
A quick mental math trick: divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 8%, your money doubles roughly every 9 years (72 ÷ 8 = 9). At 6%, it takes 12 years.
The most important factor in compound interest isn't the rate — it's time. Someone who invests $5,000/year from age 25–35 (10 years, then stops) will typically end up with more money at 65 than someone who invests $5,000/year from age 35–65 (30 years). Time in the market beats timing the market.
Regular contributions dramatically amplify compounding. Adding even $200/month to a $10,000 investment at 8% over 30 years grows it from ~$100k to over $376k. The contributions themselves total $72,000 — the rest is pure compounding.