Lesson 4
Compound interest
Why money that earns interest starts earning on its own interest.
72
Divide 72 by the interest rate to estimate the years needed to double
$1,000 over 30 years
Work it out
1Start with the principal
2Multiply by 1 plus the rate
3Repeat once for every year
Quick check
At 9% a year, about how long does money take to double?
Match each term
Drop hereThe amount you start with
Drop hereThe percentage added each period
Drop hereEarning interest on earlier interest
Drag each term to its match, or click a term and then its match.
Time does more of the work than the rate does.
Key idea
Takeaway
Start early, even if small
Homework: use the rule of 72 for rates of 4%, 6% and 9%.