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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:

- Initial principal balance (P)
- Annual interest rate (r)
- Compounding frequency per year (n)
- Time period in years (t)
- Regular contributions (if any)

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.

**Daily compounding:**The earlier you start to invest, the more time your money will grow.**Monthly compounding:**This Interest is calculated and will be added to the principal 12 times per year.**Quarterly compounding:**This Interest is calculated and will be added to the principal 4 times per year.**Semi-annual compounding:**This Interest is calculated will be and added to the principal 2 times per year.**Annual compounding:**This Interest is calculated and will be added to the principal once per year.

- Principal
- The initial amount of money invested.
- Interest Rate
- The percentage of the principal is paid as interest, usually it is expressed as an annual rate.
- Compounding Frequency
- How often the interest is calculated and added to the principal.
- Future Value
- The total amount when the investment time period is end, including the initial principal and all accumulated interest.
- Annual Percentage Yield (APY)
- The effective annual rate of return taking into account the effect of compounding interest.