Compound Interest Formula
A = P × (1 + r/n)^(n×t)
Where A = final amount, P = principal, r = annual interest rate (decimal), n = compounding frequency per year, t = time in years.
Simple vs Compound Interest
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus previously earned interest, resulting in exponential growth over time. Even a few extra years of compounding makes a dramatic difference.
Which compounding frequency is best?
More frequent compounding = higher effective yield. Daily compounding earns slightly more than monthly, which earns more than quarterly. However, the difference between monthly and daily is small (about 0.001-0.003% for typical rates).
What is the Rule of 72?
Divide 72 by the annual interest rate to find how many years it takes to double your money. For example, at 8% annual rate: 72÷8 = 9 years to double.