The Magic of Compound Interest
Compound interest is often referred to as the "eighth wonder of the world". It is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. In simple terms, it's "interest on interest".
Compounding Frequency Matters: The more frequently your money compounds (e.g., monthly vs annually), the faster it grows. Always check the compounding frequency when choosing savings accounts or fixed deposits.
How is it calculated?
A = P(1 + r/n)^(nt)
- A: Future Value (the total amount you get)
- P: Initial Principal balance
- r: Annual interest rate (decimal)
- n: Number of times interest is compounded per year
- t: Time period in years