Compound Interest Calculator
Calculate how your investments can grow over time with compound interest.
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Table of Contents
Compound Interest Formula
Compound interest is the interest earned on both the principal amount and the accumulated interest from previous periods. This creates a snowball effect where your money grows at an accelerating rate.
Where:
- A = Final amount
- P = Principal amount
- r = Annual interest rate (as a decimal)
- n = Number of times interest is compounded per year
- t = Time in years
How to Calculate Compound Interest
To calculate compound interest, follow these steps:
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1Determine your principal amount (P)
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2Convert the annual interest rate (r) to decimal form
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3Determine the number of times interest is compounded per year (n)
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4Specify the time period in years (t)
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5Plug the values into the compound interest formula
Understanding Compound Frequency
The frequency of compounding can significantly impact your returns. More frequent compounding periods generally lead to higher returns.
Annual Compounding (n=1)
Interest is calculated once per year
Semi-annual Compounding (n=2)
Interest is calculated twice per year
Quarterly Compounding (n=4)
Interest is calculated four times per year
Monthly Compounding (n=12)
Interest is calculated twelve times per year
Daily Compounding (n=365)
Interest is calculated every day
Compound Interest - Practical Examples
Example 1 Basic Investment
You invest $10,000 at an annual interest rate of 5% for 10 years with annual compounding.
A = $10,000(1 + 0.05/1)^(1×10) = $16,288.95
Example 2 Monthly Compounding
Same investment with monthly compounding instead of annual.
A = $10,000(1 + 0.05/12)^(12×10) = $16,470.09
Example 3 Long-term Investment
Investing $5,000 at 7% interest for 30 years with monthly compounding.
A = $5,000(1 + 0.07/12)^(12×30) = $40,317.97