Compound Interest Formula -
Making Your Money Work For You

Compound interest formula - do you have the self discipline to consistently put your money, (and it needn't be a huge amount), to work over a sustained period of time?

compound interest formula

If you do, then the principle of compound interest will see your money grow exponentially over time!

Compound interest is a simple and effective way of saving your money so that it becomes an investment that makes you more and more money.

Take a look - you'll soon see why and then ... go on and give it a try.


You need to commit to saving a principal - (the money that you set aside to save).

The principal amount can either be a once off lump sum, or better still, a fixed amount every month.

(Please don't be put off if you only have a small capital amount of money to save. You don't need a lot of money to use the compound interest formula.)

What you do need is time in order to see the return on your investment.

You need time to see the principle of compound interest working for you.

It is very important that the rate of growth on your saved or invested money keeps up with (or hopefully even exceeds) the rate of inflation and tax deductions.

Your money grows in a savings account because of compound interest.

This is how it works -

- You deposit your principal amount in a savings account.

- At the end of the compound period (it can be daily, weekly, monthly, quarterly or yearly) you earn interest on your initial principal amount.

- AND THEN you start earning interest on the principal amount + the interest after the compound period - exponentially ... on and on and on.

- Eventually the principal doubles and redoubles and so on and so on.

You can use the RULE OF 72 to help you predict your potential money growth on compound rates of return.

The Rule of 72 can tell you the number of years that it will take if you want to double your principal money.

How? 72 ÷ (the interest rate that you will receive) = the number of years for your principal to double

The Rule of 72 name comes from the calculation that:

- at a compound rate of interest of 10% ...

- your savings will double every 7.2 years

Practical Example One:

You invest a principal of $100.00.

You earn interest of 6%.

Your principal will double to $200.00 in 12 years

[72 ÷6% = 12 years]

Practical Example Two:

You invest a principal of $100.00.

You earn interest of 12%.

Your principal will double to $200.00 in 6 years

[72 ÷12% = 6 years]

The compound interest formula shows you, that by reinvesting the growth that you make on your principal, your money starts working for you.

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