What Is Compound Interest?

Compound interest pays interest on your interest. The formula is A = P (1 + r/n)^(n·t), where n is the number of compounding periods per year.

Invest 100,000 at 10% for 10 years and annual compounding gives about 259,374. Switch to monthly compounding and you finish near 270,704 — the same rate, a different frequency.

The lesson is that time in the market does most of the work. Doubling your horizon usually beats chasing a slightly higher rate.