The Magic of Compound Interest

Compound interest is the mechanism by which the interest on an investment is reinvested to generate new interest in turn.

The Compound Interest Formula

The future value $A$ of your investment is calculated with the following formula:

$A = P \left(1 + \frac{r}{n}\right)^{nt}$

Explanation of variables:

• $P$: Initial capital (Principal).
• $r$: Annual nominal interest rate.
• $n$: Number of times interest is compounded per year.
• $t$: Number of years of investment.

The Importance of Time

The power of this formula lies in the exponent $nt$. The longer the duration $t$, the more exponential the capital growth becomes. This is why it's crucial to start saving as early as possible.

Ready to simulate your savings? Try our Compound Interest Calculator.