Compound interest earns interest on both principal and accumulated interest - causing exponential growth over time. Einstein reportedly called it the eighth wonder of the world.
The Formula
A = P(1 + r/n)^(nt), where A is final amount, P is principal, r is annual rate, n is compounds per year, t is years. Try the Compound Interest Calculator.
Example
$10,000 at 5% compounded monthly for 10 years: A about $16,470.09 - nearly $6,470 in interest without additional deposits.
Rule of 72
Divide 72 by the annual rate to estimate doubling time. At 6%, money doubles in roughly 12 years.
Going Deeper
How compound interest grows wealth exponentially and how to calculate it. This guide connects theory to practice — use the related calculators linked at the bottom to verify each example with your own numbers.
Practical Tips
- Write down given values and unknowns before opening the calculator.
- Check units and rounding rules appropriate to your context (class, lab, or business).
- Compare manual working with the calculator result to build confidence.
Common Mistakes to Avoid
- Rushing inputs without reading field labels carefully.
- Confusing similar formulas that use different variables or units.
- Reporting results with more precision than your inputs justify.
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