Bank accounts and investments interest rates are typically described using the term APY. This stands for Annual Percentage Yeild. Look for how often the interest is compounded, such as daily, monthly, quarterly, or yearly.
For Example, let's say we placed $100 into a bank account that provides 1.25% APY, for a total 5 years. At the end of 5 years, there would be $106.45 in the account. This is because at the end of each month, the compounding interest rate is effectively one twelfth of the APY.
This calculator can be used to compare CDs (Certificate of Deposits), savings accounts, and checking accounts.
The estemed Physicist, Albert Einstein, is attributed in saying "compound interest is the eighth wonder of the world."
The glorified business legend, Warren Buffet is known to say that compound interest is an investor's best friend. He often claims that his impressive wealth can be contributed to the power of compounding.
Additionally, the rule of 72 is a quick way to figure out how long it takes to double the initial amount when it comes to compounding. Take the number 72 and divide it by the annual interest rate. The result is the approximate number of years it will take for the inital amount to double. This works no matter how large or small the initial amount it.
For example, an investment that earns 9% interest per year. 72 divided by 9 equals 8. So it would take 8 years for the investment to double with an interest rate of 9%.
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