# Compound Interest Formula Basics

## 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% |

5% | $100 | $265.33 | 165.33% |

10% | $100 | $672.75 | 572% |

20% | $100 | $3 833.76 | 3733.76% |

40% | $100 | $83 668.26 | 83,568.26% |

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.