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Compound interest

Definition

Interest calculated on both the original amount and the interest already added to it, so growth accelerates over time.

Formula

A = P × (1 + r/n)^(n × t), where P is the starting amount, r the annual rate, n compounding periods per year and t years.

Example

$1,000 earning 5% compounded annually grows to about $1,629 after 10 years; simple interest at the same rate would give $1,500.

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General educational information, not personal financial advice. See our disclaimer.

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