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Interest calculated on both the initial principal and accumulated interest from previous periods. Compound interest grows money faster than simple interest and is the key to long-term wealth building.
$10,000 invested at 7% compounded annually becomes $19,672 in 10 years. Compounded monthly, it becomes $20,097 - an extra $425 from more frequent compounding.
A = P(1 + r/n)^(nt), where A = final amount, P = principal, r = annual rate, n = compounds per year, t = yearsCompound interest is the primary driver of long-term wealth building. Starting early matters more than investing more later.