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Compound interest is interest calculated on both your initial principal and the accumulated interest from previous periods.
This is often called "interest on interest" and is why starting to invest early is so powerful. For example, \$1,000 invested at 5% annual interest will grow to \$1,276.28 after 5 years—the extra \$26.28 beyond simple interest comes from compounding.
The mathematical formula is A = P(1 + r/n)^(nt), where P is principal, r is rate, n is compounding frequency, and t is time. The more frequently interest compounds, the faster your money grows.
This is often called "interest on interest" and is why starting to invest early is so powerful. For example, \$1,000 invested at 5% annual interest will grow to \$1,276.28 after 5 years—the extra \$26.28 beyond simple interest comes from compounding.
The mathematical formula is A = P(1 + r/n)^(nt), where P is principal, r is rate, n is compounding frequency, and t is time. The more frequently interest compounds, the faster your money grows.