Compound interest is the secret of all successfull investments. You reinvest your profit every year and your investments grow at increasing rate. Use this compound interest calculator to determine how your money will grow according to your desired parameters.
How to calculate compound interest
Compound interest differs from simple interest in that your original capital increases time after time faster due to the fact that the accrued interest is added to your capital, and further interest already goes on the increased amount.
For example, if you make a deposit of 100 dollars for 5 years and choose to capitalize interest (that is, involve compound interest), and the interest rate is 10%, then your capital will grow as follows:
At the end of the first year you will receive 110 dollars.
At the end of the second year you will have 121 dollars,
the third – 133.1 dollars,
the fourth – 146.41 dollars,
The fifth – 161.05 dollars.
If you used simple interest, then your deposit amount would simply be increased by 10 dollars per year and you would end up with 150 dollars only.
Calculation formula for compound interest
The calculation of future capital when using compound interest follows the following formula:
O = Y x (1 + z/i)is, where:
O – the final amount;
Y – initial investment;
z – the annual interest rate;
i – how often the interest will be accrued (monthly, quarterly, annually);
s – total term of the deposit (years).