where 
as an example take a 3 year loan of 10 000 at an interest rate of 5 compounding annually what would be the amount of interest in this case it would be the rule of 72 is another way to estimate compound interest if you divide 72 by your rate of return you find out how long it will take your money will double in value for example if you have 100 that was earning a 4 return it would grow to 200 in 18 years 72 4 18 1the power of compound interestbecause compound interest includes interest accumulated in previous periods it grows at an ever accelerating rate in the example above though the total interest payable over the loan s three years is 1 576 25 the interest amount is not the same as it would be with simple interest the interest payable at the end of each year is shown in the table below compound interest can significantly boost investment returns over the long term over 10 years a 100 000 deposit receiving 5 simple annual interest would earn 50 000 in total interest but if the same deposit had a monthly compound interest rate of 5 interest would add up to about 64 700 while compound interest is interest on interest cumulative interest is the addition of all interest payments order your copy of investopedia s what to do with 10 000 magazine for more wealth building advice compounding periods are the time intervals between when interest is added to the account interest can be compounded annually semi annually quarterly monthly daily continuously or on any other basis 2interest on an account may accrue daily but only credited monthly only when the interest is credited or added to the existing balance does the interest begin to earn additional interest standard compounding frequency schedules are usually applied to financial instruments some banks also offer continuously compounding interest which adds interest to the principal as regularly as possible for practical purposes it doesn t accrue that much more than daily compounding interest unless you want to put money in and take it out on the same day more frequent compounding of interest is beneficial to the investor or creditor for a borrower the opposite is true the basic rule is that the higher the number of compounding periods the greater the amount of compound interest 6the following table demonstrates the difference that the number of compounding periods can make for a 10 000 loan with an annual 10 interest rate over a 10 year period compound interest start saving earlyyoung people often neglect to save for retirement they may have other expenses they feel more urgent with more time to save yet the earlier you start saving the more compounding interest can work in your favor even with relatively small amounts saving small amounts can pay off massively down the road far more than saving higher amounts later in life here s one example of its effect let s say you start saving 100 a month at age 20 you earn an average of 4 annually compounded monthly across 40 years you earn 151 550 by age 65 your principal investment was just 54 100 your twin doesn t begin investing until age 50 they invest 5 000 initially then 500 monthly for 15 years also averaging a monthly compounded 4 return by age 65 your twin has only earned 132 147 with a principal investment of 95 000 