Growth earns growth.
Compounding applies each period's change to the current total. The gap from simple interest widens with time because earlier gains also earn gains.
Inside this model
Starting with 1,000 units, nominal balance is 1,000(1+r)^t; simple interest is 1,000(1+rt). Purchasing power divides the nominal balance by (1+inflation)^t. Rates are fixed and there are no deposits.
Out in the world
A practical use
Compare long-term savings scenarios, or explore how a recurring percentage increase changes a bill over time.
A useful lens. Not a universal law.
- This is arithmetic under assumed constant rates, not an investment forecast. Taxes, fees, changing inflation and uncertain returns are excluded.
Further reading
Explore the original research or the teaching reference behind this experiment.
Investor.gov — Compound interest ↗