Use this compound interest calculator to estimate how your investments and savings will grow over time with compounding interest.
What is Compound Interest?
Compound interest refers to the interest you earn on interest. It assumes the interest earned on your savings or investment account is re-invested and also earns interest, growing your account faster over time.
For example, if you put $5,000 in a savings account that earns 2% interest and it is compounded once a year. At the end of the first year, you will have earned $100 in interest.
In year 2, your total interest will be $202, and in year 3, your total interest will be $306.04.
Compare this to simple interest calculations for the same principal amount and interest rate and you get:
- Year 1: $100 interest
- Year 2: $200 total interest
- Year 3: $300 total interest
For the compound interest calculation, you earn an extra $2 and $6.04 in years 2 and 3 respectively because interest is also earned on the interest earned on the principal.
If the compounding period becomes daily or monthly and/or you make regular contributions, you will see your savings grow a lot faster through the magic of compounding.
Compound interest is calculated using this formula:
A = P (1 + r/n)nt
Where A = the future value of your savings, P = your principal investment, r = interest rate (expressed as a decimal), n = number of compounding periods in each year, and t = time in years your money is invested for.
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Disclaimer: Calculation results are approximations and for informational and educational purposes only.