Compound Interest Calculator
Compound interest is a concept you may have come across when you take out a mortgage, for example, or when you save money in the bank and the interest you receive regularly adds to your savings. On this page, you can use our tool to see how it works in practice and how time affects it. Fill out the fields below in this compound interest calculator and learn about the power of compounding.
After a period of 10 years, you will earn 6470.09 in interest
About the compound interest calculator
The compound interest calculator allows you to calculate (approximately) how much profit you will make if you invest your money in an instrument with a fixed rate of return, where interest is capitalized regularly. Such an instrument can be a bank deposit, where interest is capitalized every month, for example. If you invest money in such a deposit over a number of years, you can see how beneficial the monthly accrual of interest is. The power of compounding has a very positive effect on such an investment. And the longer you save, the more you can earn. This compound interest calculator allows you to see how much you can earn on an investment that uses regular capitalization. As an additional option, you can see how much you will earn if you invest additional amounts on a regular basis, e.g. PLN 100 per month. If you are thinking about a long-term investment, then compound interest will be your ally and the calculator on this page will help you to see how much you can earn.
What is compound interest?
Compound interest is a type of interest rate in which interest is calculated not only on the initial capital, but also on the interest that has accrued previously. With this system, interest generates additional interest, which results in faster capital growth compared to fixed interest.
To better understand compound interest, let's consider the following example: if we invest 1,000 $ with an interest rate of 10% per year and do not withdraw or add money to our account, after one year our capital will increase to 1,100 $ (1,000 $ x 10% = 100 $). If we continue to earn 10% a year and do not withdraw or add money, after another year our capital will increase to 1210 $ (1100 $ x 10% = 110 $ + 1100 $ = 1210 $). As you can see, with compound interest our capital grows faster than with fixed interest.
Compound interest is especially useful for long-term investments, where the capital can remain on the account for many years. The longer the investment lasts, the greater the benefit of compounding.
In addition to investments, compounding can be used in various situations where we want to calculate the increase in value of some capital over time. For example, we can use compound interest to calculate how much our mortgage will be worth after a few years, or how much we will earn on a bank deposit. Thus, compound interest is a very useful tool to consider when planning our finances.
Compound Interest Formula
Compound interest is a method of calculating interest on a cash contribution, which consists in adding to the contribution (subject to capitalization) the interest for a given interest period and thus "compounding" the profit made in the next period. The amount of capital, after a certain number of years of saving, can be calculated according to the formula: where:
Pn - accumulated capital after n years of saving
P - initial capital
n - number of years of saving
r - interest rate per year (for example, if we have 3% per year, then r=3)
c - number of capitalizations per year (e.g. for monthly capitalization we have c=12)
When is a compound interest calculator useful?
A compound interest calculator can be a useful tool in a variety of situations involving capital growth or investments. Here are some uses for a compound interest calculator:
- Financial investments: The compound interest calculator allows you to calculate the future value of an investment based on the initial amount, interest rate, and investment period. It can be used for planning savings, bank deposits, stock market investments, etc.
- Retirement planning: When planning for retirement, the compound interest calculator can help you estimate how much you will have saved in the future, taking into account your regular contributions, interest rate, and savings period.
- Inflation and appreciation: This calculator can help us understand how inflation affects the value of money over time. We can calculate the future value of our savings or investments, taking into account the expected rate of inflation.
- Installment purchases: For installment purchases with compound interest, this calculator can help us estimate how much we will pay in total for the purchase and what our monthly payments will be.
The Compound Interest Calculator provides us with quick and accurate calculations that allow us to better understand the impact of compound interest on our finances. It is a useful tool for investors, savers, and people planning to pay off loans or retire.
Saving with Compound Interest
Long-term saving/investing with compound interest has incredible benefits. If you have the opportunity, it's worth taking advantage of. With regular additional contributions and compound interest, you will see a really nice sum of money after a few years. How much? You can see it in the table above. You can also use our compounding calculator to see how long you should be saving for, say, retirement. The graph shows how compounding affects the final result. The longer we save, the more interest we earn and this should motivate us to save for the long term.