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Saving & borrowing

Interest & compound interest

See how time, rate, and compounding affect a balance.

Intermediate · Ages 13+

Start with the idea

Compound interest means interest can be earned on both the original balance and earlier interest. The result depends on the rate, compounding schedule, fees, deposits, and time. Borrowing costs can compound too. This example is educational and is not a promise of investment returns.

Key takeaways

  • Compound interest earns interest on past interest, so time is a powerful factor.
  • Starting earlier with smaller amounts can beat starting later with larger amounts.
  • The Rule of 72: divide 72 by the annual rate to estimate years to double.
  • Compounding also works against you on debt.

By the end you can…

  • Explain principal and interest
  • Compare simple and compound growth
  • Use a calculator to explore assumptions

Source: Investor.gov, Compound Interest Calculator; investor.gov/financial-tools-calculators/calculators/compound-interest-calculator.

Vocabulary flashcards

Card 1 of 5
Interactive tool

Compound interest explorer

Watch a balance grow year by year with deposits and compounding.

Money you put inInterest earned
Ending balance$26,412.25
You deposited$13,000.00
Interest earned$13,412.25
$1,000 alone at simple interest$2,200.00

Rule of 72: at 6% money roughly doubles every 12.0 years. Illustration only: assumes a constant rate, no fees or taxes, and deposits at the end of each month. Returns are not guaranteed.

Check your understanding

Question 1 of 3

A fictional account starts with $100 and earns 10% once in a year, with no deposits or fees. What is the balance after one year?

Printable activity

Use this with the physical kit, in a group, or on your own.

  1. Compare simple and compound growth with a fictional $100 balance.
  2. Change the time period and describe how the result changes.
Try it this week: Use the explorer to compare starting at age 18 versus age 28 with the same monthly amount.

Reflection: What would you want to know before making this choice in real life?

Practice questions

  1. A fictional account starts with $100 and earns 10% once in a year, with no deposits or fees. What is the balance after one year?
    • $101
    • $110
    • $120
  2. Using the Rule of 72, about how long does it take money to double at 6% per year?
    • 6 years
    • 12 years
    • 18 years
  3. $1,000 earns 5% simple interest for 3 years. How much interest is earned?
    • $50
    • $150
    • $157.63