Final Balance
$0
Interest Earned
$0
Total Contributions
$0
Investment Growth Over Time
Yearly Breakdown
| Year | Start Balance | Contributions | Interest | End Balance |
|---|
Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world" because of its powerful ability to grow your wealth exponentially over time. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on both the initial principal and the accumulated interest from previous periods.
The Compound Interest Formula
The formula for compound interest is: A = P(1 + r/n)^(nt), where:
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Number of times interest compounds per year
- t = Time in years
Why Start Early?
Time is the most critical factor in compound interest. Starting early, even with smaller amounts, often results in more wealth than starting later with larger contributions. This is because each year's gains generate their own gains in subsequent years.
💡 Pro Tip: The Rule of 72
Divide 72 by your interest rate to estimate how many years it takes to double your money. For example, at 7% interest, your investment doubles approximately every 10.3 years.