How Compound Interest Works
Albert Einstein reportedly called compound interest the "eighth wonder of the world." Unlike simple interest, which only calculates profit based on your initial deposit, compound interest calculates profit on both your initial deposit and the interest you've already accumulated. Over time, this creates a snowball effect that can drastically increase your wealth.
The Compound Interest Formula
Our calculator uses the standard financial formula: A = P(1 + r/n)^(nt). Where 'P' is the principal amount, 'r' is the annual interest rate, and 't' is the time in years. By automating this complex math, you get instant, error-free results.
Frequently Asked Questions
What is a good interest rate?
Historically, the stock market (like the S&P 500) returns an average of 7% to 10% annually after inflation. High-yield savings accounts typically offer between 3% to 5%.
Why does time matter so much?
Because compounding is exponential. The longer your money sits, the steeper the growth curve becomes. A 10-year investment will yield significantly less than a 20-year investment, even if the monthly contributions are the same.