Compound Interest
Interest calculated on both the original principal AND the accumulated interest from previous periods.
Definition
The most powerful concept in personal finance. $10,000 at 7% annual return: simple interest yields $21,000 in growth over 30 years; compound interest yields $66,123 — over 3x more, all from interest earning interest. Time is the dominant variable. Starting 5 years earlier with monthly contributions can add 30-50% to the final balance.
Formula
A = P(1 + r/n)^(nt)
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