The calculator will take all the information you've entered to give you a future balance and a projected breakdown of both monthly and yearly figures to show you how your savings or investment might change over time.
How to calculate compound interest
Compound interest, or 'interest on interest', is calculated using the compound interest formula. By using our calculator, you can work out an appropriate regular saving strategy to maximise your future wealth. Compound interest is the concept of adding accumulated interest back to the principal sum, so that interest is earned on top of interest from that moment on.
The formula used in the compound interest calculator is A = P(1+r/n)(nt)
A = the future value of the investment
P = the principal investment amount
r = the interest rate (decimal)
n = the number of times that interest is compounded per period
t = the number of periods the money is invested for
What is compound interest?
Compound interest is the total amount of interest earned over a period of time, taking into account both the interest on the money you invest (this is called simple interest) and the interest earned or charged on the interest you've previously earned.
What is the compound interest formula?
The compound interest formula is: A = P (1 + r/n)nt
The compound interest formula solves for the future value of your investment (A). The variables are: P – the principal (the amount of money you start with); r – the annual nominal interest rate before compounding; t – time, in years; and n – the number of compounding periods in each year (for example, 365 for daily, 12 for monthly, etc.).
What's the difference between compound interest and simple interest?
Compound interest takes into account both interest on the principal balance and interest on previously-earned interest. Simple interest refers only to interest earned on the principal balance; interest earned on interest is not taken into account. To see how compound interest differs from simple interest, use our simple interest vs compound interest calculator.
How does compound interest work?
Compound interest has dramatic positive effects on savings and investments.
Compound interest occurs when interest is added to the original deposit – or principal – which results in interest earning interest. Financial institutions often offer compound interest on deposits, compounding on a regular basis – usually monthly or annually.
The compounding of interest grows your investment without any further deposits, although you may certainly choose to make more deposits over time – increasing efficacy of compound interest.
How can I take advantage of compound interest?
Invest early – As with any investment, the earlier one starts investing, the better. Compounding further benefits investors by earning money on interest earned.
Invest often – Those who invest what they can, when they can, will have higher returns. For example, investing on a monthly basis instead of on a quarterly basis results in more interest.
Hold as long as possible – The longer you hold an investment, the more time compound interest has to earn interest on interest.
Consider interest rates – When choosing an investment, interest rates matter. The higher the annual interest rate, the better the return.
Don't forget compounding intervals – The more frequently investments are compounded, the higher the interest accrued. It is important to keep this in mind when choosing between investment products.