Compound Interest

Definition

Compound interest is the interest on a deposit or loan calculated based on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal amount, compound interest allows your money to grow exponentially over time. The frequency of compounding (daily, monthly, quarterly, annually) affects the total amount of interest earned. Albert Einstein reportedly called compound interest "the eighth wonder of the world." The formula is A = P(1 + r/n)^(nt), where P is principal, r is annual rate, n is compounding frequency, and t is time in years.