Compound Interest Formula Explained with Example
Compound interest helps savings grow because you earn interest on both your original amount and previously earned interest.
The formula
Future Value = Principal × (1 + Rate)^Time
What each part means
- Principal = starting savings amount
- Rate = annual interest rate
- Time = number of years
Example
If you save $10,000 at 5% interest for 10 years, your money grows using the compound interest formula. Over time, compounding creates a much larger final value.
Use the calculator
Use the savings calculator to test how your savings grow with different interest rates and time periods.
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