Compound Interest Calculator
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Average stock market return is ~7-10%
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Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world" because of its powerful wealth-building potential. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on both the principal and the accumulated interest from previous periods.
The Formula
The compound interest formula is: A = P(1 + r/n)^(nt)
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Number of times interest compounds per year
- t = Number of years
Tips for Maximizing Compound Interest
- Start early: Time is your greatest asset with compound interest
- Be consistent: Regular contributions significantly boost your returns
- Reinvest dividends: Automatically reinvesting keeps the compounding going
- Keep fees low: High fees eat into your compounding returns