# Compound Interest Calculator

**Disclaimer:** Whilst every effort has been made in building these compound interest calculators, we are not to be held liable for any special, incidental, indirect or consequential damages or
monetary losses of any kind arising out of or in connection with the use of them. Full disclaimer. These tools are
here purely as a service to you, please use them at your own risk.

## Daily, monthly or yearly compounding

**The compound interest calculator includes options for:**

- daily compounding
- monthly compounding
- quarterly compounding
- half yearly and yearly compounding

Your savings account may vary on this, so you may wish to check with your bank or financial institution to find out which frequency they compound your interest at. Should you wish to calculate without compounding, give the simple interest calculator a try.

## Compounding of interest

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 act of
declaring interest to be principal is called **compounding**. Financials institutions vary in terms of their compounding rate requency - daily, monthly, yearly, etc. Should you
wish to work the interest due on a loan, you can use the loan calculator.

## Compound interest formula

Compound interest, or 'interest on interest', is calculated with the compound interest formula. Multiply the principal amount by one plus the annual interest rate to the power of the number of compound periods to get a combined figure for principal and compound interest. Subtract the principal if you want just the compound interest. Read more about the formula.

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

Year | Interest Calculation | Interest Earned | End Balance |
---|---|---|---|

Year 1 | $10,000 x 10% | $1,000 | $11,000 |

Year 2 | $11,000 x 10% | $1,100 | $12,100 |

Year 3 | $12,100 x 10% | $1,210 | $13,310 |

Year 4 | $13,310 x 10% | $1,331 | $14,641 |

Year 5 | $14,641 x 10% | $1,464.10 | $16,105.10 |

Here's an example chart with a smaller sum of money ($1,000) using a longer compounding investment period (20 years) at the same 10% per year (to keep the sum simple). Here we compare the benefits of compound interest versus standard interest and no interest at all.

When you get into a pattern of regular, consistent investing. the power of compound interest can prove an effective growth strategy for your money, as the deposits mount up and you gain interest on your interest. Find out more in our article, What is compound interest?

## Other frequently asked questions

Here I answer some other common questions sent to me about the compound interest calculator.

### When is interest compounded?

With savings accounts, interest can be compounded at either the start or the end of the compounding period (month or year). If additional contributions are included in your calculation, my savings calculators assume that those contributions are made at the start of each period.

### What is the effective annual rate?

The effective annual rate is the rate that actually gets paid after all of the compounding. When compounding of interest takes place, **the effective annual rate becomes higher
than the overall interest rate**. The more times the interest is compounded within the year, the higher the effective annual rate will be. More information on
effective annual interest rate can be found in this article from Investopedia.