How Compound Interest Works
A = P(1 + r/n)^(nt) where P is principal, r is annual rate, n is compounds per year, t is years. Compound interest earns interest on previously earned interest, leading to exponential growth.
Compounding Frequency Matters
More frequent compounding produces slightly higher returns. Monthly compounding is common for savings accounts. Use this to compare investment scenarios and understand the power of compound growth.