What Is Compound Interest?
Compound interest is the concept of earning interest on your initial principal as well as on the accumulated interest from previous periods. Often described as "interest on interest," compounding accelerates wealth creation exponentially over longer investment horizons.
Compound Interest Formula
$$A = P \left(1 + \frac{r}{n}\right)^{nt}$$
- A = Final maturity amount
- P = Initial principal balance
- r = Annual nominal interest rate (decimal)
- n = Number of compounding periods per year
- t = Total time duration in years
Frequently Asked Questions (FAQ)
How does compounding frequency impact returns?
The more frequently interest is compounded (e.g., monthly vs. annually), the faster your money grows because interest begins earning interest sooner.
What is the Rule of 72?
The Rule of 72 is a quick estimation shortcut to determine how long an investment will take to double: divide 72 by the annual fixed interest rate.
Does this calculator support monthly deposits?
Yes, you can input regular recurring additions either monthly or annually to model disciplined long-term savings strategies.