The Magic of Compound Interest (And How to Calculate It)

Albert Einstein allegedly called compound interest "the eighth wonder of the world." Whether he actually said it or not, the math remains incredibly powerful.

Unlike simple interest, which only pays out based on your initial deposit, compound interest pays you interest on your interest. Over long periods, this creates an exponential growth curve that is the foundation of retirement planning.

The Formula

The standard formula for compound interest is: A = P (1 + r/n)^(nt)

Where:

• A = the future value of the investment/loan
• P = the principal investment amount
• r = the annual interest rate (decimal)
• n = the number of times that interest is compounded per unit t
• t = the time the money is invested for in years

Running the Numbers

Doing this math manually—especially when factoring in monthly compounding (where n=12)—is tedious.

That's why we built a lightning-fast, highly visual Compound Interest Calculator.

What it shows you:

• Total Final Amount: Exactly what your account will be worth.
• Total Interest Earned: See exactly how much "free money" your money made for you.
• Effective Annual Rate (APY): See the true percentage yield when compounding frequency is taken into account.

Start planning your financial future today by running your numbers through the calculator!