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Compound Interest Calculator

Find the compound interest earned from an investment with this Compound Interest Calculator. Input principal, yearly interest rate, the amount of years the interest has been compounding, and how many times per year the interest is compounded.

What is compound interest and how do you find compound interest?

To find the final value of an investment use this compound interest
formula:
Investment Value = P x ( 1 + r/n )^{(Y x n)}

P = Principal Value

r = Yearly Interest Rate in decimal form ( example: 5% in decimal form
is .05 )

Y = Life of the investment in years

n = how many times per year the interest is compounded

Example: An original investment of $5,000 held for 3.5 years at an
interest rate of 5% would result in the following values.

If compounded yearly, the investment value would be:

Investment Value = $5,000 x ( 1 + .05/1)^{(3.5 x 1)}

Investment Value = $5,938.43

The same investment compounded weekly would result in:

Investment Value = $5,000 x ( 1 + .05/52 )^{(3.5 x 52)}

Investment Value = $5,955.88

How to use the Compound Interest Calculator

To use this calculator, enter the variables for the compound interest calculator. Enter the principal and annual interest rate. Then enter the life of the loan and the amount of times, per year, that the interest compounds.

How is Compound Interest Used in real life?

On just about any debt, compound interest works against you. For a simple example, let's say you take out a $1,000 loan with an annual simple interest rate of 5%. At the end of the first year, you'd owe the original principal amount of $1,000 and another 5% of that, or $50. After the first year, you now owe $1,050. Now that is your new principal, and after another year, you'll owe that amount, plus 5% on it. Now you owe $1,102.50. Rinse and repeat.

Now, compound interest isn't bad. It's actually pretty cool if you can find yourself on the investing side, rather than the loan side. If you loan someone money, or make an investment that allows you to earn compound interest, it will grow exponentially. Many retirement plans and investment strategies count on compound interest to grow wealth for clients.

What is Compound Growth?

Compound Interest uses the principals of compound growth. As explained in the previous example, compound growth occurs when the percentage of growth over a period is added to the principal. This is now the new principal. The more that this occurs, then the new principal will increase after each period by quite a bit.

The power of Compound Interest

As you become more acquainted with the principal of compound interest, try some experiments. Look at how much a small amount will grow over a 30 year period of time in comparison to a larger dollar amount over a 20 year period of time. You'll see how just a few more years can make a big difference in the total value due to the compounding interest.

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