In the Interest of Interest
Saving money means earning interest. Here you can see how
money grows with compound interest.
money grows with compound interest.
Compound Interest Calculation
Interest is paid on original amount of deposit, plus the interest you’ve already earned.
Interest is paid on original amount of deposit, plus the interest you’ve already earned.
Principal x Interest Rate x Time = Amount Earned
| Example: | ||
| If you had $100 in a savings account that paid 4 percent interest compounded annually, the first year you would earn $4 in interest. | With compound interest, the second year you would earn $4.16 in interest, because you’re now earning interest on your interest from the first year as well. | |
| Interest Earned: $100 x .04 x 1 = $4 |
Interest Earned: $104 x .04 x 1 = $4.16 |
|
| Total Savings: $100 + $4 = $104 |
Total Savings: $104 + 4.16 = $108.16 |