The Eighth Wonder of the World

Albert Einstein reportedly called compound interest "the eighth wonder of the world," saying, "He who understands it, earns it; he who doesn't, pays it."

What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest over previous periods.

The formula for compound interest is:

Where:

• A = Final amount
• P = Principal (initial investment)
• r = Annual interest rate (in decimal form)
• n = Number of times interest is compounded per year
• t = Time in years

The Power of Compounding

Consider an investment of ₹10,000 with a 10% annual return:

• After 1 year: ₹11,000
• After 10 years: ₹25,937
• After 30 years: ₹174,494

This demonstrates how the same investment grows dramatically over time due to compounding.

Time is Your Greatest Ally

The earlier you start investing, the more powerful compound interest becomes. Even small amounts invested early can outperform larger investments made later.