Our free, online Compound Interest Calculator tells you the possible outcomes of a typical bank deposit or investment. Determine how much your money can grow using the power of compound interest.
Compound Interest Calculator
Information and hints on the use of the Compound Interest Calculator
1. What is compound interest?
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 is standard in finance and economics.
The compound interest tells you how your bank deposit and its interests yield after a certain amount of time (duration). Let’s see a simple example to understand what compound interest is:
You deposit 100,000 USD in the bank. • Let’s say that the rate of interest for 1 year is 5 percent.
• After 1 year you will already have 105,000 USD in the bank.
• If you leave your money for a second year in the bank, not only the initial capital (100,000 USD) but also the yield from the interest rate of the first year (5,000 USD) will bear interest.
• This means that after 2 years you will have 110,250 USD in the bank (the initial 100,000 USD yielded 5,000 USD, while the 5,000 USD received after the interest of the first year earned 250 USD).
2. How does the Compound Interest Calculator calculate?
What the compound interest calculator does is nothing else than a calculation of a certain percentage belonging to the given situation.
2. What are the professional terms for the calculation of compound interest?
• Starting amount / Initial capital: It basically means the amount that is invested.
• Final amount or Capital at the end of the duration: The sum available after the end of the duration. If the interest rate was positive, this sum is bigger than the initial capital.
• Duration (in years): The time during which our money (investment) is yielding interest. Duration is usually determined in years (or maybe months) by banks, financial institutions, insurance companies, or other actors of the financial market.
• Interest rate: This is a value expressed in percentage, and it shows the growth of an investment after 1 year. For example, an interest rate of 5 percent means that with a duration of 1 year and investment of 100,000 USD you will earn 5,000 USD, so you will have a capital of 105,000 USD at the end of the duration.
4. What is the formula of compound interest?
Based on the most simple and most frequent case of compound interest, the formula of compound interest (which is also used by our free calculator) is as follows:
Compound interest = i*(1+r/100)t
The abbreviations of the formula stand for the following: i = initial capital, r = interest rate, t = duration (in years).