Compound Interest Explained (with Formula & Examples)
June 24, 2026 Ā· 4 min read Ā· Toolszy Team
Albert Einstein reportedly called compound interest the "eighth wonder of the world." Whether or not he said it, the maths is powerful: your interest earns interest.
The formula
A = P(1 + r/n)^(nĀ·t) ā where P is the principal, r the annual rate, n how many times a year it compounds, and t the number of years.
An example
Invest ā¹1,00,000 at 8% for 10 years, compounded yearly: A ā ā¹2,15,892. That's ā¹1,15,892 of interest ā more than double, from doing nothing.
Why frequency matters
The same investment compounded monthly instead of yearly grows a little more, because interest is added more often.
Why time matters most
Compounding rewards patience. Starting five years earlier can dramatically increase your final amount ā the curve gets steeper over time.
Try your own numbers in the Compound Interest Calculator, or compare with our Simple Interest Calculator.
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