Compound Interest Calculator
If you have a savings account and you want to know how much interest you will receive or the total value of your account the compound interest calculator below will definitely come in handy. Introduce the values manually or use the plus and minus buttons to select the needed values. Once you are done, your calculations will be executed right away and the respective balance schedules will be shown within seconds. Here are the terms used and how the calculator works:
- The Initial Amount represents the amount of money you initially place in your savings account for which you will gain interest.
- The Compound Amount represents the amount which you want to deposit each month or each year. It is also called the Deposit Amount. If you are not interested in making any monthly or annual deposits at all you can introduce $0 as value. (The interest will be calculated for the amount you have in the savings account.)
- The Compound Period represents how often you deposit an extra amount of money to the savings account. You can choose to either work with monthly deposits or annual deposits.
- The Interest Rate is the interest percentage the bank or financial institution offers for savings accounts.
- By using Years to Calculate, you can ask the calculator to establish the period of time for which the calculations must be executed.
- By using Compound Interest Overview you can either generate a monthly or annual balance schedule.
What is compound interest?
With a compound interest savings account you will not only get interest for the initial amount you deposited, but you will also get interest on top of the interest you already received. The process of adding interest to the initial amount in this manner is called compounding.
For example, if you have a savings account with $1000 initial amount and an interest rate of 25% per year, then you should have $1250 at the end of the first year and $1562.50 at the end of the second year. During the second year you will receive $62.50 more as interest than during the first year! This happens because you receive interest during the second year over the interest received during the first year.
This means that you can earn more for each year you keep your money in the savings account. However, you should keep in mind that annual inflation will eat up some of your gains, so some further calculations are in order. Still, as long as the annual inflation values are below the interest rate you receive, your money will be protected, and you will even earn more year after year.
If you plan to save money for a long term goal, having a savings account is a good strategy. As you add money on top of the initial amount, and even if you do not do that, your savings account will increase in value, so you can use the extra cash gained, when you decide to make a withdrawal.