Important formula on simple interest and compound interest
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Use this simple interest calculator to find A, the Final Investment Value, using the simple interest formula: A = P(1 + rt) where P is the Principal amount of money to be invested at an Interest Rate R% per period for t Number of Time Periods. Where r is in decimal form; r=R/100; r and t are in the same units of time.
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Compound Interest Formula - Explained
Article Category: Finance | 338 Comments
Since I first launched my compound interest calculator, I have regularly been the recipient of emails asking me to explain the formula for calculating compound interest. For that reason, we're going to tackle this subject today.
The concept of compound interest is that interest is added back to the principal sum so that interest is earned on that added interest during the next compounding period. If you would like more information on what compound interest is, please see the article what is compound interest?. For now, let's look at the formula and go through an example.
How do you calculate compound interest?
Calculating compound interest requires a formula: A = P (1 + r/n) (nt). Into that formula you put your principal amount, interest rate (as a decimal), the number of compounds and the amount of time you're investing or borrowing for. Once you've done that, the formula will give you a total that includes your principal and compounded interest.
Let's go through this process step by step, first taking a look at the formula itself:
The compound interest formula
The formula for compound interest, including principal sum, is:
A = P (1 + r/n) (nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for.
I hope it is helpful for you
Read our privacy policy.
Accept

Menu
You are here: the calculator site » articles » compound interest formula - explained
Compound Interest Formula - Explained
Article Category: Finance | 338 Comments
Since I first launched my compound interest calculator, I have regularly been the recipient of emails asking me to explain the formula for calculating compound interest. For that reason, we're going to tackle this subject today.
The concept of compound interest is that interest is added back to the principal sum so that interest is earned on that added interest during the next compounding period. If you would like more information on what compound interest is, please see the article what is compound interest?. For now, let's look at the formula and go through an example.
How do you calculate compound interest?
Calculating compound interest requires a formula: A = P (1 + r/n) (nt). Into that formula you put your principal amount, interest rate (as a decimal), the number of compounds and the amount of time you're investing or borrowing for. Once you've done that, the formula will give you a total that includes your principal and compounded interest.
Let's go through this process step by step, first taking a look at the formula itself:
The compound interest formula
The formula for compound interest, including principal sum, is:
A = P (1 + r/n) (nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for.
I hope it is helpful for you
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