How to Use
TheCompound Interest Calculator is a tool for calculating investment returns on deposits and stocks. When investing, make good use of the compound interest calculator to predict future returns.
- Initial Principal : Enter the starting amount.
- Number of Interest Periods : Enter the number of investment periods. Compound interest will be calculated repeatedly based on the entered periods.
- Interest Rate : Enter the expected compound interest rate of return.
- Calculate : Output the result calculated using compound interest.
The Meaning of Compound Interest
Compound interest is a method of calculating interest on investment assets that adds the principal to the previous interest to calculate the next interest. Unlike simple interest investments, which generate the same interest each time, compound interest investments generate increasing amounts of interest over time. Therefore, compound interest investments grow in an geometric progression over time.
| # | Capital | Earnings | Interest Rate | Total Amount |
|---|---|---|---|---|
| 1 | 10000 | 1000 | 10% | 11000 |
| 2 | 11000 | 1100 | 21% | 12100 |
| 3 | 12100 | 1210 | 33.1% | 13310 |
Assuming an initial capital of 10000, increasing by 10% each year. Although the interest increases by 10% in the first year, it increases by 11% in the second year. Finally, the total amount in the third year is the principal plus 33.1% of 13310. In this case, the amount is 3.1p.p. higher than simple interest investment.
Compound Interest Formula
When investing with compound interest, you can use the following method to calculate the future value of your assets.
$$F = P(1+r)^n$$
- F : Future Value
- P : Present Value
- r : Interest Rate
- n : Number of Periods
This calculator uses the compound interest formula applied to this equation.
Rule of 72
The Rule of 72 is a method to roughly determine how long it takes for an asset to double in value without using a calculator.
$$t \approx 72/r$$
The calculation method is simply to divide 72 by the compound interest rate. For example, if the interest rate is 5%, the time it takes for the asset to double in value is 72/5 = 14.4 years, which is very close to the actual period of 14.207 years. This is a very useful method when you don't have a calculator. Mathematically, using 69.3 is more accurate than 72, so the 69 rule or 70 rule is also used. However, 72 can be divided by more non-negative integers, so the Rule of 72 is commonly used.
Application Method
Most investment assets can earn returns with compound interest. When investing in deposits or stocks, first use the compound interest calculator to calculate future returns, then plan for the future!