Compound interest, drawn
Interest on interest, year after year. $1,000 at 10% becomes $2,594 in ten years, and you can see exactly where the extra came from.
The problem,
and the picture.
The brief
Most compound interest explainers show one curve. The interesting part, interest earning interest, stays invisible.
The approach
A bar chart that builds a year at a time, split into three colours: the original $1,000, simple interest, and interest on interest. The red slice starts as $10 and grows until it is the difference between $2,000 and $2,594. Then the rule of 72.
- FieldFinance
- Runtime0:56
- Made forStudio sample
- SourceUS SEC, Investor.gov compound interest calculator
- SourceArithmetic checked in code; an explanation, not investment advice
The narration.
Put a thousand dollars somewhere that pays ten percent a year. After one year, you've earned a hundred dollars. Simple. But in year two, you earn ten percent on eleven hundred, not just on the thousand. That's a hundred and ten. The extra ten dollars is interest on your interest. That's compound interest. Each year, the pile you earn on gets bigger, so the growth itself grows. With simple interest, ten years gives you two thousand dollars. With compounding, about two thousand five hundred and ninety-four. A quick shortcut, the rule of seventy-two: divide seventy-two by the interest rate to estimate how many years it takes to double. At ten percent, about seven years. Interest on interest, year after year. Time does the heavy lifting. That's compound interest.