# How to calculate compound interest

The compound interest formula from the previous section does not actually need to be memorized in order to estimate the future value of an investment. Compound interest doesn’t even require knowledge of math! With our compound interest calculator, you can do it in a matter of seconds, wherever and whenever you like.

Our smart calculator allows you to calculate your investment’s future value by filling out the appropriate fields:

• ### The main properties

1. Initial balance – your investment or deposit amount.
2. Interest rate – annual interest rate.
3. Term – the period of time in which you will invest your money.
4. In this field, you can select how often the compounding applies to your balance. Interest is usually added to the principal balance daily, weekly, monthly, quarterly, semi-annually, or yearly. However, you may also set it to continuous compounding, which is the theoretical limit for compounding frequency. In this case, compounding takes place on an infinite number of occasions.

1. How much – the amount you plan to deposit.
2. How often – you can choose how often additional deposits will be made.
3. When – If you are adding money to the account at the beginning or at the end of a period, you should choose the timing of the transaction.
4. Growth rate of deposit – This option allows you to set a growth rate for the additional deposit. This option is particularly useful if your income is likely to increase over time as a result of inflation or promotion.

Our compound interest calculator will calculate all the necessary calculations for you and give you the results in a flash.

There are two main results:

• You will receive the final balance, which is the total amount you will receive after the specified period.
• Generally, interest is calculated as the sum of compounded interest payments.

As a result of setting the additional deposit field, we were able to calculate the compounded initial balance as well as the compounded additional balance.

Also included in the interest amount is their contribution, namely interest on the initial balance and interest on additional deposits.

## Examples of compound interest

• How does compound interest work?
• Curious about how compound interest rates are calculated?
• How does our calculator work?
• Would you like to know how compound interest calculations are interpreted?
• Is the compound interest formula of interest to you?

Hopefully, by studying the examples below, you will be able to answer these questions correctly and effectively.

## An investment’s value can be calculated by following this example

An initial investment is calculated to determine its future value in the first example.

Question

How much will your \$10,000 investment be worth after 10 years if you invest it at 5% per year and compound it annually?

Result

In the first place, let’s look at what values we have, and what we need to find. We know that you plan to invest \$10,000. This is your initial balance P, and you plan to invest \$10,000 for 10 years. In addition, the compound interest formula equals 1 since the interest rate r is equal to 5% and it is compounded annually.

By determining your investment’s future value FV, we will be able to calculate the amount of money you will receive from it.

Using the compound interest formula, we can count it:

In this example, the FV equals 10,000 * (1 + 0.05/1) ^ (10*1) = 10,000 * 1.628895 = 16,288.95

After 10 years, your investment will be worth \$16,288.95.

As a result, your profit will be calculated as FV – P. This is equal to \$16,288.95 – \$10,000.00 = \$6,288.95.

The accuracy depends on the values you are computing. You should not round too much up until the end of the calculation. Your answer may be incorrect if you do not. It should be enough to have six digits after the decimal point for standard calculations.

## Compound interest table

These tables are included in many older financial textbooks as an appendix. Compound interest tables were used before calculators, personal computers, spreadsheets. They made financial calculations simpler and faster (yes, really…).

The following is an example of a compound interest table.

You can calculate the final balance of your investment by using the data provided in the compound interest table. The column compound amount factor displays the value of the factor (1 + r)^t for the respective interest rate (first row) and t (first column). Using the table, multiply the initial balance by the appropriate value to determine the final balance of the investment.

When you know the future value of the investment, you can compute the present value using the values from the column Present worth factor.

As you can see, this is only a very simple example of compound interest. In reality, they are usually much, much larger, because they contain more periods t various interest rates r and different compounding frequencies m… For the compound amount factor or present worth factor, you had to flip through dozens of pages.