Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal, compound interest grows exponentially over time.
The formula is: A = P(1 + r/n)^(nt). For example, if you invest $10,000 at 5% compounded annually, after 10 years your investment would grow to approximately $16,289.
Albert Einstein reportedly called compound interest the eighth wonder of the world. The key to maximizing compound interest is to start investing early and let time work in your favor.