# Compounding Daily Interest Calculator ## 1. How to use the Compound Interest Calculator?

The Compound Interest Calculator helps you calculate the value of an investment over time. It also shows you the total interest earned in your savings account.

Compound interest: interest on money already invested earns interest on itself. Therefore, your initial investment grows faster than it would otherwise. And all of that income shows up in your savings account.

To use the compound interest calculator, enter the initial deposit amount and the annual percentage rate (APR) into the fields below. Then click “Submit.” You will see how much more money you will earn with each additional year.

## 2. Use the Calculator

### Input for the Compounding Daily Interest Calculator

INPUT: (1) Initial Capital, (2) Interest Rate.
 Initial Capital (\$) Interest Rate(%, Annual, Compounded Daily)

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``` ## 3. What is compound interest?

If you invest your money at a fixed annual interest rate (e.g., bonds), you will receive interest income for the period (e.g., one year).

Compound Interest means receiving interest on your original money and your already generated interest income.

The compound interest calculator will show you exactly that. Play with the numbers of principal amount and interest rate to see the effects on compound interest and the growth of your wealth.

## 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!

## 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.

## 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.

## 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.

## 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.

## 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.

## 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.

## 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.

## 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.

## 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. ## 15. I want to build and compound real wealth. Should I invest in bonds to get compound interest?

In my opinion, bonds are not necessarily the best way to build real wealth (see the difference in the total return of stocks and bonds in the previous example). A simple interest with a fixed interest rate can only get you so far.

Equity investments build real wealth. Examples of equity investments are stocks, real estate, crypto assets, etc.

## in your Inbox.

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I hope the compound interest calculator is helpful to you. Fill up your savings account, identify assets with higher interest rates, and ensure your interest compounds. Most importantly, get educated and use helpful resources. If you are planning for retirement, check out this calculator. Until next time.

Best,
Harry

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