# Compound Interest

Compound interest is interest earned on both your original principal and on previously accumulated interest. It's the mechanism that makes invested money grow exponentially over time.

## Why it matters

Compound interest is the single most powerful force in personal finance — it rewards starting early more than investing large amounts later. The difference between starting to invest at 25 vs. 35 can mean hundreds of thousands of dollars by retirement, even with identical monthly contributions.

Example

$10,000 invested at 7% annual return grows to $19,672 in 10 years and $38,697 in 20 years — nearly quadrupling without adding a single dollar.

## How Ray helps

Ray can project the future value of your current savings and investment accounts using compound growth assumptions. Try to see how compounding works on your actual balances.

Terminal

`$ ray "if I keep saving at this rate, what will I have in 20 years?"`

## Related terms

[APY (Annual Percentage Yield)  
APY is the real rate of return on a savings or investment account, accounting for the effect of compounding interest.](/content/learn/apy/index.html)  
[Rule of 72  
The Rule of 72 is a quick mental math shortcut: divide 72 by your annual rate of return to estimate how many years it takes for an investment to double in value..](/content/learn/rule-of-72/index.html)  
[Time Value of Money  
The time value of money (TVM) is the principle that a dollar today is worth more than a dollar in the future, because today's dollar can be invested to earn returns.](/content/learn/time-value-of-money/index.html)  
[Index Fund  
An index fund is a type of mutual fund or ETF designed to track the performance of a specific market index, like the S&P 500.](/content/learn/index-fund/index.html)  
[Yield  
Yield is the income return on an investment, expressed as a percentage of the investment's cost or current market value.](/content/learn/yield/index.html)

## Try Ray free

Open source, local-first, and takes five minutes to set up.

$npm install -g ray-finance [View on GitHub](https://github.com/cdinnison/ray-finance)