Compound Interest Calculator

Compound Interest

This refers to the ability of a certain amount of money (the principal) that grows with interest over a certain time period… let’s say a year. Then the following year, the original amount plus the interest grows with even more interest. When this happens for multiple periods or years and the interest is added year after year, we call this compound interest. It is by far the easiest way to ‘make money with money’

Difference between Compound and Simple Interest

Simple Interest refers to the original principal earning interest each year. So, if you have $100, with simple interest you will earn interest on $100 on years 1, years 2, etc. With compound interest you would earn interest on $100 in year 1. But, for year 2 (and subsequent years) you would earn interest on $100 plus the interest on the interest earned in year 1.

Example

Understanding compound interest and how it differs from simple interest is an important topic in personal finance. Trying to decode the underpinnings of both can be difficult when relying on text alone. Below is a chart that shows how compound interest differs from simple interest. Both references how $100 grows over a period of 10 years with an interest rate of 10 percent compounded annually.