Understanding Compound Interest

Compound interest is the interest calculated on the initial principal and the accumulated interest from previous periods. It's often called "interest on interest" and can significantly increase your investment returns over time.

The Formula

A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]

• A = Final amount
• P = Principal (initial investment)
• r = Annual interest rate (decimal)
• n = Number of times interest is compounded per year
• t = Time in years
• PMT = Regular contribution amount

Tips for Maximizing Returns

• Start early: Time is your greatest ally with compound interest
• Contribute regularly: Consistent contributions accelerate growth
• Reinvest earnings: Don't withdraw interest - let it compound
• Compare frequencies: More frequent compounding = higher returns