What is compound interest?
Compound interest is interest earned on both your original money and the interest it has already earned. Over time this "interest on interest" snowballs, which is why starting early is so powerful โ often called the eighth wonder of the world.
The formula
For a starting amount with regular monthly contributions: FV = P(1+i)แดบ + PMT ร ((1+i)แดบ โ 1) รท i, where i is the monthly rate and N is the number of months.
Why time beats amount
Because growth compounds, an extra 10 years often adds more to your final balance than doubling your monthly contribution. Drag the "years" slider and watch the interest-earned share grow far faster than what you put in.
What return rate should I use?
Historically, broad stock markets have averaged roughly 7% per year after inflation over the long term, but returns vary and aren't guaranteed.
Does this account for inflation or tax?
No โ it shows nominal growth. Real spending power will be lower after inflation, and gains may be taxable.