Compound Interest
Interest earned on both the original principal and previously accumulated interest.
Compound interest is the process where interest is calculated on an initial principal amount plus all accumulated interest from prior periods. It causes wealth to grow exponentially over time, making it a foundational concept for saving and investing.
The formula is often expressed as A = P(1 + r/n)^(nt), where P is principal, r is annual rate, n is compounding frequency, and t is time in years.
Early saving maximizes compound interest because time is the most powerful variable in the equation.