Compound Interest
Interest earned on the original principal plus all previously-accumulated interest.
Compound interest is the engine that turns small, regular contributions into a substantial balance over decades. Each period's interest becomes part of the principal that earns interest in the next period.
Future value with annual compounding is FV = P × (1 + r)ⁿ. With m compounding periods per year over t years and rate r per year: FV = P × (1 + r/m)^(m·t). Compounded continuously: FV = P × e^(r·t).
Practical insight: doubling time is well-approximated by the Rule of 72 — divide 72 by the annual rate (in percent) to estimate how many years a balance takes to double.