finance investing guide
Understanding Compound Interest
By Editorial Team ·
Compound interest is often called the most powerful force in personal finance: you earn interest not only on your original money, but also on the interest it has already generated.
The formula
A = P × (1 + r/n)^(n × t)Where P is the principal, r the annual rate, n the compounds per year and t the number of years.
Why starting early wins
Two people each invest $200/month at 7%. Alex starts at 25 and invests for 40 years; Sam starts at 35 for 30 years. Alex ends up with roughly twice the balance — that extra decade of compounding does the heavy lifting.
Try it in the Compound Interest Calculator.