Compounding Daily Interest Calculator

4. How is compound interest calculated?

You can calculate compound interest with a basic formula.

A = P(1+r/n)^(nt)

A is the future value of your capital that results from your deposit plus the interest income.

P is your initial balance (e.g., $10,000).

r is the Interest Rate that you receive (e.g., a nominal annual interest rate of 8%). Use decimal for r in the formula (e.g., 0.08 to account for an annual percentage yield of 8%).

n is the number of times the interest is compounded per period (e.g., 365).

If we assume a period of 1 year, a number n of 365 means the annual rate (of 8%, for example) is compounded daily (365 days in one year). Instead of receiving your interest amount after the period ends (e.g., one year), cash is paid out to you every day.

t is the number of periods (e.g., 30 years).

Simple interest refers to the original principle.

The compound interest formula calculates compound interest considering your initial deposit, the interest rate, the compounding frequency, and the bond's duration. The result is the future value of your capital.

5. How much wealth do I have after 30 years with an initial deposit of $10,000?

Earning interest and interest compounding is powerful. A small sum of money can become substantial wealth, and it takes time. The real power of interest compounding especially shows up after more prolonged periods.

Calculate compound interest with the compound interest calculator to see how much accumulated interest you can generate. The effects are even more enjoyable with a larger balance. And with a higher interest rate, of course. Start saving and get more interest!

An initial deposit of $10,000 turns into a future value of $110,202 after 30 years. You multiplied your money in your bank account by over 11x.

6. Can there be a different compounding period?

Yes, the compounding interval can be different than a daily period, and other compounding periods are weekly, monthly, quarterly, or annual compounding.

The bond issuer (the institution that offers the bonds) ultimately defines the compounding period. Some issuers even provide a bi-weekly compounding interval, with many more compounding frequencies.

Yes, compounding periods can vary. The important thing is you get compounded interest.

7. Can I make additional contributions to increase my total investment?

Yes, often, you can add more capital to your original principal and get more interest. It depends on the issuer of the bond.

Some allow additional contributions, and others don't. Investing is a process; therefore, it makes sense to contribute more capital regularly.

Make sure to diversify your investments and not put all eggs in one basket. Risk management always comes first, and you never want to lose all of your chips.

Please ask your financial institution.
Usually, you can add to your principal amount and ask how much interest they pay for an increase in your principal amount.

8. Are there more compound interest formulas?

Yes. Consider additional contributions, the compound interest calculations, and the compound interest rate differential. It will consider both your original money and contributions and the total interest earned will be higher, of course.

The basic formula for simple interest is A = P(1+r/n)^(nt). For other more complicated formulas, the compound interest differs.

Please ask your financial institution. Usually, you can add to your investment, principal balance, and total deposits to increase the interest earned.

9. Which financial institutions enable me to take advantage of interest income at a fixed rate and compound interest as an investment?

You can earn interest from your bank. Ask them how much interest they offer and also about the compounding frequencies. Avoid negative interest rates. There is no harm in having money in multiple savings accounts.

Alternatively, you can purchase bonds from your broker and compound interest that way.

You can earn interest income with many financial institutions. It is always good to have an investment account.

10. Which investments will get me compound interest?

Any investment can generate compound interest, and a bond pays compound interest, as discussed.

The critical thing to remember is to stay invested for long periods and re-invest your accrued interest. Your investment profits will generate further investment returns. You compound growth.

Any asset can yield compounding interest. Investing is powerful, especially for long-term investors. Stay invested, and compound interest will work its magic.

11. Which asset class typically generates fixed interest income and enables compound interest?

Bonds (in simple words: loans) are the asset class that typically yield fixed interest income. It generally has lower risk (and lower reward) compared to an investment in equities.

The risk of bonds depends on the interest rate, and issuers with higher counterparty risk usually offer higher interest rates.

Bonds yield fixed interest income and enable compound interest. Make sure to calculate interest.

12. Should I buy bonds with a higher annual interest rate?

Targeting a higher total interest rate makes sense, and bonds are typically riskier if they offer a higher annual interest rate.

Make sure your risk management is excellent, or get help from professionals.
It is not only about the interest earned but also about protecting your principal.

The future value of your investments depends not only on the interest rate. Make sure you protect your principal at all times.

13. What other asset classes can make use of compound interest, and can you give examples?

If you re-invest the profits from the assets that you are holding, it will lead to continuous compounding.

The stock market is another example. Dividends are profits from stocks or a mutual fund that you hold. If you re-invest the dividends by buying more shares, your dividend income will go up further. Compound interest strikes again.

Stocks are another example of an asset class that can enable compound interest for investors and can be an essential part of retirement planning.

14. Is compound interest more effective with stocks or bonds?

Compound interest always works the same way (see the formula above). Historically, stocks have shown a higher investment return compared to bonds.

The graph below shows 200 years of history. One dollar invested in 1800 in bonds would have generated a wealth of $5,000 today, and one dollar invested in stocks would have turned into over $1,000,000.
The timeframe is very long, but the difference in the return potential of stocks and bonds is astounding.

Compound interest works the same way with stocks and bonds, and stocks have historically shown a higher return rate than bonds.