How to Calculate Compound Interest: Formulas & Wealth Building Guide

Compound interest is the engine behind wealth building. Unlike simple interest, which is calculated only on the principal amount, compound interest earns interest on both the initial principal and the accumulated interest from previous periods.

The Compound Interest Formula

A = P (1 + r/n)^(nt)

• A = Final Amount
• P = Principal investment amount
• r = Annual interest rate (as a decimal, e.g. 7% = 0.07)
• n = Number of times interest is compounded per year
• t = Number of years

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