Compound interest is when earned interest is added to the original amount and interest for the new period is calculated based on the balance amount. This allows the principal amount to grow ever-faster over a long enough time period.
You can use the calculator below to work out the compound interest for an amount based on the interest rate and number of years.
Frequently Asked Questions
What is compound interest?
Compound interest is the interest you earn on top of the initial principal and on top of the accumulated interest of past periods. This creates a snowballing effect that increases the value of your investment over time.
How do I calculate compound interest?
The formula for compound interest is: A = P (1 + r/n)nt where: A is the amount of money after the compounding periods P is the principal amount r is the annual interest rate n is the number of compounding periods per year t is the number of years
What are the pros and cons of compounding interest?
One advantage of compounding interest is that it can create a snowballing effect that increases the value of your investment over time. Another advantage is that compounding can help to reduce the amount of taxes you owe on your investment income. A disadvantage of compounding interest is that it can increase the amount of debt you owe if you're not careful, it can sometimes be more expensive than you realize. The cost of compound interest is not always easy to see, so it's important to be aware of it when you're making financial decisions.
Who benefits from compound interest?
Generally, people who save money over a long period of time stand to benefit the most from compound interest. This is because the longer you allow your investment to grow, the more compounding periods it will experience and the larger the final payoff will be.
How can I use compound interest to my advantage?
There are a few things you can do to make the most of compound interest: -Start saving for retirement as early as possible -Invest your savings in a diversified mix of assets -Stay disciplined with your spending and avoid racking up high levels of debt -Make use of tax-advantaged accounts, such as 401(k)s and IRAs, to help reduce your tax bill