The compound interest calculator for savings and investments helps you to figure out
- The difference of saving now vs in the future
- How to calculate compound interest
- How compounding increases your investment return / savings interest
- The difference in final amount if compounded annually, bi-annually, quarterly, monthly, weekly, and daily
Using this compound interest calculator, you can easily vary the deposit and compound intervals at any time because it has a lot of features most calculators don’t have. Therefore, you can easily compare expected interest earnings basing your comparison on different investment scenarios to make the right choice.
To use this compound interest calculator, you need to enter:
- The balance you’re starting with
- Regular amount of deposit at any specified interval
- Interest rate
- Your compounding interval
- Interest duration you are expecting your investment to grow
The results should be your estimates since varying deposit and compounding intervals could make actual results vary considerably.
Savings and Investment Calculator:*Note: Please do not enter any symbols, commas or letters in the below fields. Use numbers only (i.e., do not enter: £10,000, do enter: 10000).
Once you have filled in the correct amounts above, press this button:
*Note: These results are for demonstration purposes only. Actual results may vary according to financial institution, calculator, assumptions made and/or individual doing the math. **If you get a value of NAN, then you entered somehting that is Not A Number or the numbers you entered do not make logical sense.
How does compound interest work?
Compound interest is usually compounded on a regular basis monthly or annually depending with the choice of the investor. Regardless, compound interest is the total amount of interest earned after a period of time and the original deposit used to earn the interest. Even though you may choose to make more deposits, compounding your interest makes your investment grow without making further deposits.
Normally, investors benefit from compound interest because interest earned is automatically added to the principal amount making interest earned next a bit more than the previous one. For instance, if you invest $1000 for three years at 10% simple interest, you will get $100 each year ($300 total interest) and that’s all. However, if you compound the amount annually, you will have a higher interest i.e. $100, $110 and $131 for three years respectively. That is a total of $341 in interest. The principle behind compound interest is that, interest earned after each compounding period is added to the original amount and this increases total interest.
How to take advantage of compound interest
You can really benefit from compound interest if you follow these tips:
- Investing early – You are supposed to invest as early as possible to have your total interest increase with time because the interest you will have earned will be added to your original deposit
- Invest often – It is prudent investing regularly with the least you’ve because eventually you will end up with interest. Therefore, investing on a monthly basis will get you more interest rather than investing quarterly or annually only.
- Consider interest rates offered – When you are planning to invest in compound interest, you should look for a financial institution which has a higher interest rate because you will get more returns.
- Hold on your investment for a long period of time – The longer you have your principal amount earning interest, the higher the interest you will gain. Therefore, you should hold on your investment long enough to benefit from interest earned.
- Consider the compounding intervals – you should understand that, if you compound your investment frequently, you will get higher interests. Hence, you should check on your compounding intervals
Importance of compounding intervals
As discussed above, frequent compounding intervals are preferred since they have higher interests. For instance, if you compound your investment annually and semi-annually (twice a year), you will gain different interests.
In case you’ve $1,000 compounded annually with 10% interest rate, you will have accrued $100 as interest.
On the other hand, if you’ve the same amount compounded semi-annually with the same interest rate, you will have earned $50 as interest for the first 6 months and $52.5 for the next 6 months. Therefore, if you do your investment semi-annually, you will have a total of $102.5.
From this example, it is evident that the two interests earned vary significantly. Therefore, we can conclude that, the smaller the compounding interval, the higher the interests rate and vice versa. Also, monthly rates have more interest rates when compared to semi-annual rates while weekly rates have more interest rates than monthly intervals. Ideally, most investments are either compounded annually or semi-annually with smaller frequencies not being used.
When calculating compound interest, you can either use a compound interest formula or a compound interest formula. Either way, you can be able to calculate your interest but using compound interest calculator is better because it helps you understand how compound interest work.
If you want to become a successful investor, you need to know the importance of compound interest and choose the right investments to get higher returns. In addition, investing with a reputable financial institution is important to avoid losing your money.