# Compounded Interest Calculator

Here are the essentials of calculating net present value.

What can you do with a compounded interest calculator? The most important thing is that you can see what the power of compound interest is in making your money grow over time.

 PV(annual) Term(years) Rate(%) Compoundingsper Year(#) Future Value

## Here Is a Simple Example

If you put \$1,000 in a bank that pays 5% interest compounded 4 times a year, how much money would you have at the end of 5 years? Using the compounded interest calculator below, put in the following inputs: 1000, 5, 5, 1. After pressing the calculate button, you would see a result of \$1282 for the future value(FV). If the bank only compounded once per year, the result would be \$1276.

## What Does Compoundings per Year Mean?

In the above example, compounding 4 times in a year versus 1 time results in \$6 more income. Compounding 4 times means that every 4th of the year or every 3 months, the bank would deposit one fourth of the annual interest or 1.25% to your account. Having the interest paid early means that you would earn interest on the interest paid before the end of the year. This would in effect raise you effective annual interest rate from 5.0% to 5.095%.

## Another Compound Interest Example

Assume that you are investigating a stock etf that has had an average annual compounded return of 15% over the last 10 years. You think that it will continue to appreciate at the same rate for the next 10 years. You want to know how much your nest egg of \$50,000 would grow in the next 10 years. So your calculator inputs would be 50000, 10, 15, 1. The result for the future value would be \$202,278.