---
title: "What Is Compound Interest? A Sourced Beginner's Guide"
slug: what-is-compound-interest
category: business
category_label: "Business"
author: "BrainWavePost Staff"
date: 2026-06-04
tags: ["finance", "savings", "investing", "basics"]
read_time_minutes: 5
canonical_url: https://brainwavepost.com/article/what-is-compound-interest
source: BrainWavePost
---

# What Is Compound Interest? A Sourced Beginner's Guide

*Business · 2026-06-04 · BrainWavePost Staff · 5 min read*

> A short, fully sourced explainer on compound interest using the official definitions and calculator from the U.S. Securities and Exchange Commission.

> **How this article is sourced** _(info)_
>
> Definitions and the formula come from the U.S. Securities and Exchange Commission's official investor education site, Investor.gov. [1][2] This is general financial education, not personalised investment advice.

Investor.gov, the U.S. SEC's investor education website, defines compound interest as 'interest earned on money that was previously earned as interest.' In other words, you earn interest on your original deposit and on the interest that deposit has already produced. [1]

## Simple vs. compound interest

With simple interest, you earn interest only on the original amount (the principal). With compound interest, the interest itself is added back to the balance and starts earning interest in the next period. Over long periods this difference can be substantial. [1]

## The formula

The standard compound-interest formula, as published by Investor.gov, is A = P(1 + r/n)^(nt), where P is the principal, r is the annual interest rate (as a decimal), n is the number of times interest is compounded per year, and t is the time in years. [1]

## Try the official calculator

The SEC provides a free, official compound-interest calculator on Investor.gov that lets you enter a starting amount, monthly contribution, interest rate, and time horizon. [2]

> **Not financial advice** _(note)_
>
> This article explains a concept; it does not recommend any product, account, or investment. Past performance does not guarantee future results.

## References (clickable)

- [1] U.S. SEC Investor.gov — Compound Interest: https://www.investor.gov/introduction-investing/investing-basics/glossary/compound-interest
- [2] U.S. SEC Investor.gov — Compound Interest Calculator: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

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