This Compound Interest Calculator can help you calculate the compound interest accumulation and ultimate balances for both fixed principal amounts and additional periodic instalments. Optional elements for consideration are the tax on interest income and inflation..
Interest is the compensation provided by the borrower to the lender for the usage of money, expressed as a percentage or sum. The notion of interest serves as the foundation for the majority of global financial products.
There are two techniques of accumulating interest: simple interest and compound interest.
Compounding interest takes more than one period, so let's return to the example of Derek borrowing $100 from the bank for two years at a 10% interest rate. For the first year, interest is calculated as usual:
$110 × 10% = $11
Derek's interest charge at the conclusion of year two is $11. This is added to the amount owed after year one:
$110 + $11 = $121
When the loan is paid off, the bank receives $121 from Derek rather than $120 if simple interest was used. This is because interest can be earned on interest.
The more frequently interest is compounded over a certain period, the greater the interest generated on the original principal. The graph below depicts a $1,000 investment with various compounding frequencies producing 20% interest.