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.
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