Compound Interest
Quick definition: Compound interest means earning returns on both your original money and the returns it has already earned, so growth speeds up over time.
In plain English
With simple interest you earn only on your starting amount. With compound interest you also earn on past earnings. The usual formula is:
Future value = principal × (1 + rate ÷ n) ^ (n × years)
where n is how many times a year the return is added.
Example
$1,000 growing at 7% a year, compounded annually, becomes about $1,967 after 10 years. Simple interest would give only $1,700.
Why it matters
Compounding is the reason that reinvesting dividends and starting early matter so much. The longer the time, the bigger the effect.
Common mistakes
- Underestimating the effect of time. Waiting a few years costs more than most people expect.
- Forgetting that real returns are not smooth or guaranteed.
Investment Disclaimer
All information and tools on this website are provided for informational
purposes only. The calculations, examples, and projections are simplified
estimates and may not reflect real-world investment results.
Nothing on this website should be interpreted as financial, investment,
tax, or legal advice. You are solely responsible for your investment
decisions and any outcomes resulting from them.
Past performance and projected returns do not guarantee future results.
Always conduct your own research and consult a qualified financial advisor
before making investment decisions.