The compound interest formula
A = P(1 + r/n)^(n·t)
Where P is the starting amount, r is the annual rate, n is compounds per year, t is years. The more time and the more frequent compounding, the larger the result.
Why time matters more than the amount
£200/month at 7% for 30 years grows to about £244,000. You contribute £72,000. Compounding did the rest. The last decade adds more than the first two combined.
Frequently asked questions
What is compound interest?
Interest earned on both your original amount and the interest it has already earned.
How is it different from simple interest?
Simple interest is paid only on your original amount. Compound interest is paid on original plus accumulated interest.
How often should interest compound?
More frequent (monthly, daily) grows slightly faster than annual, though the difference is smaller than the effects of rate and time.