What is compound interest?

With simple interest you earn only on the amount you first deposited, but with compound interest each period interest is added to the balance, and the next round is calculated on the bigger total. The effect is modest at first and dramatic over decades: 1,000 dollars growing at 7 percent a year becomes about 7,600 dollars after 30 years. A handy shortcut called the Rule of 72 estimates doubling time by dividing 72 by the interest rate, so money at 8 percent doubles in about nine years. The same maths works against borrowers, which is why unpaid credit card balances can spiral. While studying compound interest in 1683, mathematician Jacob Bernoulli discovered the famous constant e.