What is Compound Interest?
Albert Einstein famously called Compound Interest "the eighth wonder of the world." Unlike simple interest, where you only earn money on your initial investment, compound interest allows you to earn interest on your interest.
The Formula
The standard formula used by this calculator is:
A = P(1 + r/n)^(nt)
- P: The principal investment amount.
- r: The annual interest rate (decimal).
- n: The number of times interest is compounded per year.
- t: The number of years the money is invested.
Why Frequency Matters
The more frequently your money compounds (e.g., Monthly vs. Annually), the faster it grows. For example, $10,000 at 10% for 5 years earns more if compounded monthly ($16,453) than annually ($16,105).