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Compound Interest Calculator
See how your investments grow over time by earning interest on interest.
Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world" because of its powerful ability to grow wealth exponentially over time. Unlike simple interest, which only earns interest on the principal, compound interest earns interest on both the principal AND previously earned interest.
The Formula
The compound interest formula is: A = P(1 + r/n)^(nt)
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Number of times interest compounds per year
- t = Number of years
Key Takeaways
- Start early: The earlier you start investing, the more time compound interest has to work its magic.
- Be consistent: Regular contributions, even small ones, add up significantly over time.
- Let it grow: Avoid withdrawing from your investments to maximize compound growth.
- Higher rates help: Even a 1-2% higher return can make a massive difference over decades.