This Compound Interest Calculator can help determine the compound interest accumulation and final balances on both fixed principal amounts and additional periodic contributions. There are also optional factors available for consideration, such as the tax on interest income and inflation.
Interest Calculator
Total Interest: โ
Total Amount: โ
Understanding Interest
Interest is the compensation paid by the borrower to the lender for using money, expressed as a percentage or an amount. It is the foundation of nearly every financial instrument in the world.
Types of Interest
There are two main types of interest accumulation methods:
- Simple Interest โ calculated only on the original principal.
- Compound Interest โ calculated on both principal and accumulated interest.
๐ก Simple Interest Example
Derek borrows $100 at an annual interest rate of 10% for one year:
$100 ร 10% = $10
After one year, Derek repays $110 ($100 principal + $10 interest).
For two years: $100 + $10 + $10 = $120.
Formula: Interest = Principal ร Rate ร Time
๐ Compound Interest Example
When interest compounds, you earn "interest on interest."
Year 1: $100 ร 10% = $10 โ $110
Year 2: $110 ร 10% = $11 โ $121
Result: Derek pays $121 instead of $120 โ a $1 gain due to compounding.
Interest Growth Over Time
[Graph Placeholder: Compound vs Simple Interest]
The Rule of 72
To estimate how long it takes for money to double at a given interest rate:
Years = 72 รท Interest Rate
Example: 72 รท 8 = 9 years โ Money doubles in 9 years at 8%.
๐ฐ Fixed vs Floating Rate
Fixed rates stay the same; floating rates vary based on market benchmarks like the Fed Rate or LIBOR.
๐ Contributions
Periodic deposits boost compounding. Payments made at the start of each period yield slightly higher returns.
๐ธ Taxes & Inflation
Taxes and inflation reduce real gains. To preserve value, the return rate must exceed both inflation and tax combined.
Try the Interest Calculator
Estimate your total earnings and see how compounding affects your balance over time.
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