Compound Interest

Compound interest is interest earned on interest. Unlike simple interest, which is always calculated on the original principal, compound interest grows faster because each period’s interest is added to the balance and itself earns interest in the next period.

The formula is:

A = P × (1 + r/m)^(m × t)

Where P is the principal, r is the annual rate, m is the compounding frequency per year, and t is the number of years. Starting early and staying invested is what makes compounding powerful. See the effect with the Compound Interest Calculator.