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# Compound interest calculator

See the amount that an initial sum of money will grow as interest is applied. This compound interest calculator can be useful for assessing the future value of your savings and investments, and also for working the amount by which a loan will increase over a set period.

## How to use our compound interest calculator

Using our compound interest calculator means following these steps:

- Enter the initial amount on which the interest will apply.
- Enter the interest rate being accrued. For instance, if you’ve taken out a loan with a 5% annual interest rate, you would enter 5%.
- Enter the amount of time you want to use to calculate compound interest (expressed in years or months).
- Enter the compound interval ( whether you want interest to be calculated monthly, quarterly, or yearly).
- Enter any deductions or additions, for example payments being made towards a loan or additional money put into a savings account each month.
- Press “Calculate” to see the final result.

## How the compound interest calculator works

The Invezz compound interest calculator works by calculating the growth of a principal amount over time, taking into account the interest accrued and any deductions or additions made.

## Why should I use it?

To make sure you’re not losing out financially by paying off your loans too slowly, or to work out how much your savings and investments will grow over time due to compounding interest. Compound interest is one of the most powerful money-making tools available to investors, and also a potentially painful burden if you’ve taken out a loan that’s accruing compound interest.

If you have the means to afford it, try to add small amounts on a regular basis to your initial investment so that it grows faster over time (say, for your child’s university fund).

If you’ve taken out a loan, try to pay down as much of it as you can as quickly as possible, so that you’re paying less over time rather than getting hit by escalating payment totals caused by compounding interest.

## What is compound interest?

Compound interest is the interest that is accrued repeatedly on a sum of money. It ‘compounds’ by reapplying at set time intervals on the sum as it grows over time, meaning that a high compound interest leads to exponential growth of the initial amount.

This can be applicable to both savings and loans. For example, imagine you have £10,000 in a savings account that gives 2% interest. In the first year, your savings will rise by £200 to £10,200, and in the next year that 2% interest will be applied to the new amount and your account balance will rise by £204 to £10,404. In year three the interest will be £208.08 giving a total of £10,612.08 and so on.

This can be beneficial in terms of growing your savings over time, but if you borrow money in the form of a loan with interest the same effect will happen. This means you can end up paying back much more than you initially borrowed if you don’t pay down the loan at regular intervals.

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