Compound Interest Fundamentals

Future value with compound interest follows FV = PV × (1 + r/n)^(n×t), where PV is present value, r is the annual rate, n is compounding periods per year, and t is years.

More frequent compounding increases effective yield at the same nominal rate. Compare tools using the same compounding assumption.

Use compound interest models for savings projections, investment growth estimates, and loan balance trajectories when interest accrues on unpaid balances.

Real-world returns vary. Calculators assume constant rates unless you model scenarios separately.

• Compound interest accelerates growth compared with simple interest.
• Match compounding frequency when comparing products.
• Constant-rate models are educational baselines, not forecasts.

What is the difference between APR and APY?

APR typically reflects the nominal annual rate without compounding effects. APY reflects the effective annual yield after compounding.