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What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only earns interest on the original amount, compound interest allows your money to grow exponentially over time.
Albert Einstein reportedly called compound interest "the eighth wonder of the world," saying: "He who understands it, earns it; he who doesn't, pays it."
The Compound Interest Formula
The basic formula for compound interest is:
A = P ( 1 + r n ) n t A = P \left(1 + \frac{r}{n}\right)^{nt} A = P ( 1 + n r ) n t
Where:
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