Our free, online compound interest calculator tells you the possible outcomes of a typical bank deposit or investment. Choose the compound interest calculator that suits your needs, and you will get the results in a second.
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 per cent.
• 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).
What the compound interest calculator does is nothing else than a calculation of a certain percentage belonging to the given situation.
• Initial capital: It basically means the amount that is invested. Sometimes this sum is not known in the calculation of compound interest: There is a question where the initial capital must be calculated to know how much you have to invest to reach a future goal.
• 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: 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 per cent 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.
The Compound Interest Calculator and its different versions give a numerical answer in the following common situations:
• The most common case is to calculate the yield of an investment (e.g. bank deposit) if you know the duration of the investment, as well as the interest rate.
• To calculate the time (expressed in years) that is required to reach an expected yield. The interest rate and the initial sum (e.g. money in a bank deposit) must be known for this calculation.
• The Compound Interest Calculator also tells you how much money you have to invest to reach a certain sum after a given duration and with a known interest rate.
• Last, but not least, the Compound Interest Calculator can also tell you what interest rate you need if you want to reach a given yield on your bank deposit.
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).