Compound interest is interest added on to the principal on a deposit or loan so that the added interest also earns interest and so on and so forth.
Why It's Important
I think Albert Einstein said it best, "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it." If you start with $1000 in the bank and it gains 10% a year, the breakdown would look like this:
Year 1: $1100
Year 2: $1210
Year 3: $1331
That's compound interest!
For the technical people it's formula is
|=||initial principal balance|
|=||number of times interest applied per time period|
|=||number of time periods elapsed|
Join our mailing list to receive the latest news and updates from our team. Your information will not be shared.