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Calculating Compound Interest
Interest of Banks
Compound Interest is how you can earn a tiny bit of extra money in a savings account. This page helps you calculate the savings you will earn through Compound Interest using calculations based on deposits, rates and time. Interest is a fee paid for the use of money. It is like paying rent on a building. There are different ways that this interest can be calculated. For example using simple interest you can calculate the interest for one year by multiplying the principle by the interest rate. For example imagine you had $100 and you were earning 12% interest per annum. This would mean at the end of the year you would have $12 interest ($100 * 12%) and a total of $112. |
However if your earnings were based on compound interest the interest earned would be slightly higher. Let’s assume that your interest was calculated monthly. Therefore you have 12 compounds per year and you would earn 1% per month. The interest for month two would be 1% of $101. This is because the interest earned in month is added to your principle. So the interest in month two would be $1.01. The principle at the beginning of month three would be $102.01 and so your interest in month three would be $1.02. This process continues for the full period until you’re the end of the year when the total of your interest would be $12.68. You can calculate this in one step by multiplying ($100 * 1.01 ^12) - $100. The ^ sign stands for to the power of. To express this in words - you multiply your principle by 1 plus the interest rate (for the month) to the power of 12 (because there are 12 months). This gives you the total amount you will have at the end of the year and you can now deduct the initial principle to give you your earnings (interest).
Complete the data entry form below and calculate your projected balance and earnings after gaining interest over a certain time.
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