Compound interest calculator
Simple and easy compound interest calculator
How to calculate compound interest
To calculate the compound interest for an investment, you can follow these steps:
- Determine the Principal Amount: This is the initial amount of money that you have invested. It is also known as the principal or the initial deposit.
- Identify the Annual Interest Rate: This is the rate at which your investment will grow annually. It is often expressed as a percentage. Ensure to convert this rate into a decimal for calculations by dividing by 100. For instance, a 5% interest rate becomes 0.05.
- Determine the Number of Times the Interest is Compounded Per Year: This is the frequency with which the interest on your investment is calculated and added back to the principal. It could be annually, semi-annually, quarterly, monthly, etc.
- Identify the Number of Years for the Investment: This is the total duration for which your money will be invested or loaned.
- Apply the Compound Interest Formula: Use the formula below formula:
A=P×(1+R/N)N×T
- Where:
- A is the future value of the investment including interest
- P is the principal investment amount
- R is the annual interest rate in decimal form
- N is the number of times interest is compounded per year
- T is the time in years the money is invested for
- Calculate and Analyse the Result: Insert your values into the formula and calculate to get the total amount at the end of the investment period. To get just the interest earned, subtract the initial principal from this total amount.
Compound Interest FAQs
What is compound interest?
Compound interest is the interest that is earned on an initial principal amount as well as the accumulated interest from previous periods. The interest is added to the principal, and the resulting amount becomes the new principal for the next interval.
How does compound interest work?
Interest can be compounded on any given frequency schedule, such as continuous, daily, or annually. The compounding periods are the time intervals between when interest is added to the account. Interest on an account may accrue daily but only credited monthly. Only when the interest is credited, or added to the existing balance, does the interest begin to earn additional interest.
What is the formula for compound interest?
The formula for compound interest is A = P(1 + R/100)^t, where A is the amount, P is the principal, R is the rate of interest, and t is the time period.
What is the difference between simple interest and compound interest?
Simple interest is a set percentage paid on the initial principal, while compound interest is interest paid on both principal and existing interest. In simple interest, interest is not added to the principal while calculating the interest during the next period. In compound interest, the interest so far accumulated is added to the principal, and the resulting amount becomes the new principal for the next interval.
How often is compound interest calculated?
Compound interest can be calculated yearly, half-yearly, quarterly, monthly, daily, etc., as per the requirement.