How Compound Interest Works: Formula and Calculation Guide
Understand the mathematical power of compound interest and how small monthly contributions build long-term wealth.
The Power of Compounding
Compound interest is interest calculated on the initial principal as well as accumulated interest from previous periods. Over long horizons, it accelerates wealth growth exponentially.
The Mathematical Formula
The standard compounding formula is A = P(1 + r/n)^(nt), where P is principal, r is annual rate, n is frequency per year, and t is time in years.