Compound interest, explained
Why the same rate grows faster the longer it compounds.
Compound interest means you earn interest on your earlier interest. A balance of 1,000 at 10% a year becomes 1,100 after one year and 1,210 after two, because the second year's interest is calculated on 1,100.
More frequent compounding raises the result slightly: monthly compounding at 12% a year gives about 12.68% effective annual growth.
Real returns are rarely constant. Treat any projection as an illustration based on the rate you assume, not a forecast.
Published by RADO Technology. General information, not professional advice.