Compound Interest Formula

The compound interest formula calculates the amount of money earned on an initial deposit (principal) plus the interest that accumulates over time. Unlike simple interest, which only earns on the original amount, compound interest earns on the principal and previously earned interest, allowing your money to grow faster. The formula is: A = P (1 + r/n)^(nt) where 'A' is the final amount, 'P' is the initial principal, 'r' is annual interest rate (decimal), 'n' is the number of times interest is compounded per year, and 't' is the time in years. This demonstrates how compounding accelerates growth as interest is periodically added and earns more interest.