Compound interest, explained simply

Albert Einstein reportedly called compound interest the eighth wonder of the world. The mechanics are simple — and powerful.

The core idea

When you earn interest on money, that interest starts earning interest too. Over time the curve is exponential, not linear. $1,000 at 8% grows to roughly $2,159 in 10 years without you adding a cent.

The formula

A = P(1 + r/n)^nt. P is your starting amount, r the annual rate, n how often interest compounds per year, and t the years. Try it live with our compound interest calculator.

Compounding frequency matters

Daily compounding beats monthly, which beats yearly — because earnings get reinvested sooner. Banks advertise their frequency; now you know why.

Time is the real magic

Starting 10 years earlier can matter more than contributing more. The earlier you start, the more compounding does the heavy lifting.