Compound Interest Calculator

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What Is Compound Interest?

Compound interest is interest that applies not only to the initial principal of an investment or a loan, but also to the accumulated interest from previous periods. In other words, compound interest involves earning, or owing, interest on your interest.

The power of compounding helps a sum of money grow faster than if just simple interest were calculated on the principal alone. And the greater the number of compounding periods, the greater the compound interest growth will be. For savings and investments, compound interest is your friend, as it multiplies your money at an accelerated rate. But if you have debt, compounding of the interest you owe can make it increasingly difficult to pay off.

Key Takeaways

  • Compounding multiplies savings or debt at an accelerated rate.
  • Compound interest is interest calculated on both the initial principal and all of the previously accumulated interest.
  • Generating "interest on interest" (koronkorko in Finnish) is known as the power of compound interest.
  • Interest can be compounded on a variety of frequencies, such as daily, monthly, quarterly, or annually.
  • The higher the number of compounding periods, the larger the effect of compounding.

Learn more at Investopedia