**Compound interest** is the addition of **interest** to the principal sum of a loan or deposit, or in other words, **interest** on **interest**. It is the result of reinvesting **interest**, rather than paying it out, so that **interest** in the next period is then earned on the principal sum plus previously accumulated **interest**.

## Compound Interest Formula

**A = P(1 + r)**^{t}

^{t}

In the formula

- A = Accrued amount (principal + interest)
- P = Principal amount (amount borrowed or saved)
- r = interest rate as a decimal (usually written as a percent)
- t = time in decimal years; e.g., 6 months is calculated as 0.5 years. Divide your partial year number of months by 12 to get the decimal years.