Compound Interest Formula Basics

The growth of $100 invested for 20 years at 5%.
The growth of $100 invested for 20 years at 5%.

The Real Power of Compounding

But this is not the all… Here I will show you what the real power of compounding is… So, we went through the example from above, where we invest $100 , for 20 years at 5% interest rate. Let’s change the example a little… Let’s say we want to invest $100 for 20 years again, but this time we can invest it at 10% interest. We are just changing the interest rate. So, what our amount would be after 20 years? At 5% it goes to $265, as we saw above. Now we double the rate, will the amount double? How do you think? The answer is NO . The amount will more than double and reach $672.75 with total ROI of 572% . So, this is the real power of compounding:

if you double the interest rate, your ROI more than doubles if everything stays equal

Using again the same example, if you double one more time and make the 10% rate 20%. Your $100 buck would grow to the astonishing amount of $3,833.76 On the table below you can see the three examples together. Just see what you would have after 20 years if you invest just $100, but at 40% interest rate:This is the real power of compounding, I think I explained it well and now you got it. So, the most important thing when you invest is to get the maximum interest rate you can. Even a small difference can make a big impact over time, in the long run. This is also true when you take a loan. Even a half of a percent can change big time the total amount you need to pay for your mortgage loan, just because it is for a long period of time, usually 20-30 years. So, be careful.

Interest Rate
Initial Investment
After 20 years in $
Total ROI%
20%$100$3 833.763733.76%
40%$100$83 668.2683,568.26%

If you like this post, please, consider sharing it with friends. Also, you can get some investment ideas by visiting our investment strategies section of the site.


I just love investing... It's a passion of mine and this is how I ended up building this site. I hope I am able to add some really cool investing stuff here.

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.