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| Year | Opening Balance | Annual Interest | Annual Contribution | Closing Balance |
|---|---|---|---|---|
| 1 | $10,000.00 | $1,115.49 | $12,000.00 | $23,115.49 |
| 2 | $23,115.49 | $2,063.61 | $12,000.00 | $37,179.09 |
| 3 | $37,179.09 | $3,080.26 | $12,000.00 | $52,259.36 |
| 4 | $52,259.36 | $4,170.42 | $12,000.00 | $68,429.77 |
| 5 | $68,429.77 | $5,339.38 | $12,000.00 | $85,769.15 |
| 6 | $85,769.15 | $6,592.84 | $12,000.00 | $104,362.00 |
| 7 | $104,362.00 | $7,936.92 | $12,000.00 | $124,298.92 |
| 8 | $124,298.92 | $9,378.16 | $12,000.00 | $145,677.09 |
| 9 | $145,677.09 | $10,923.59 | $12,000.00 | $168,600.68 |
| 10 | $168,600.68 | $12,580.74 | $12,000.00 | $193,181.42 |
| Compound Frequency | Final Balance | Total Interest Earned |
|---|---|---|
| Daily | $220,714.89 | $150,714.89 |
| Monthly | $220,622.88 | $150,622.88 |
| Quarterly | $220,455.93 | $150,455.93 |
| Semi-Annually | $220,290.36 | $150,290.36 |
| Annually | $220,127.22 | $150,127.22 |
Compound interest can be earned not only from the initial principal amount, but also from the interest accrued in previous periods. In other words, the interest earned in each period will be added to the principal, so that in the next compounding period, your earned interest on the original principal plus interest from the previous period.
| Simple Interest | Compound Interest |
|---|---|
| Interest is calculated only on the principal amount | Interest is calculated on the basis of the principal amount and interest accrued in previous periods. |
| Linear growth | Exponential growth |
To calculate your compounded savings, you need to consider several factors under:
The basic formula for compound interest without regular contributions is:
A = P(1 + r/n)^(nt)
Where A is the final amount. For calculations including regular contributions, the formula becomes more complex and is best handled by calculators or spreadsheets.
Compound interest works by reinvesting the interest earned (including the principal). Your investment will grow exponentially over time.
| Year | Starting Balance | Interest Earned | Ending Balance |
|---|---|---|---|
| 1 | $10,000 | $700 | $10,700 |
| 2 | $10,700 | $749 | $11,449 |
| 3 | $11,449 | $801 | $12,250 |
The frequency of compounding can significantly affect the amount of interest earned. More frequent compounding results in higher returns, assuming the same annual interest rate.