Compound interest is interest calculated on both the principal and the accumulated interest. It is the difference between earning interest on $1,000 and earning interest on $1,000 plus the interest you have already earned. Over time, that difference becomes enormous. Albert Einstein reportedly called compound interest the eighth wonder of the world. Whether he said it or not, the math is impressive.

The formula is A equals P times the quantity 1 plus r over n raised to the power nt, where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest compounds per year, and t is the number of years. A $10,000 investment at 5 percent compounded annually grows to $16,289 in 10 years. At 7 percent, it grows to $19,672. At 10 percent, it grows to $25,937. The higher the rate, the more dramatic the compounding.

Compounding works against you when you borrow. A credit card charging 20 percent interest compounds daily. A $5,000 balance can double in four years if you make only minimum payments. Student loans, mortgages, and car loans also compound. The faster the compounding frequency, the more you pay.

The rule of 72 is a quick way to estimate doubling time. Divide 72 by the interest rate. At 6 percent, money doubles in about 12 years. At 9 percent, in about 8 years. At 12 percent, in about 6 years. It is not exact, but it is close enough for a quick calculation.