# Compounding Interest Calculator

## How to Use The Compounding Interest Calculator

This compounding interest calculator will tell you how much your money will be worth if you leave it in an interest bearing investment for a period of time. Compounding means that you not only earn interest on the principal(your original money invested) but also on the interest that you are earning each time period(compounding period).

Using the simple example of a savings account, the inputs to the compounding interest calculator are:

The investment amount or your deposit in the savings account.

• The annual interest rate or nominal rate.
• The term or length of time the money is left in the savings account(in months).
• The compounding times per year or the number of compounding periods.

This compounding interest calculator will tell you how much your money will be worth if you leave it in an interest bearing investment for a period of time. Compounding means that you not only earn interest on the principal(your original money invested) but also on the interest that you are earning each time period(compounding period).

Using the simple example of a savings account, the inputs to the compounding interest calculator are:

The investment amount or your deposit in the savings account.

• The annual interest rate or nominal rate.
• The term or length of time the money is left in the savings account(in months).
• The compounding times per year or the number of compounding periods.

# Compounding Interest Calculator

Investment Value At End Of Term Effective Interest Rate Nominal Interest Rate

## Effective Interest Rate

When you use the compounding interest calculator, you will notice that 2 different interest rates are outputted. The second one is the nominal interest rate. It is the same as the annual interest rate that you inputted into the boxes. The effective interest rate is the annual interest rate after the effects of compounding. So the more times that compounding occurs, the higher the effective interest rate will be. Let's try a test of this. Enter \$1000. for an investment amount, 6% for the annual interest rate and 60 months for the term.

After 3 or 4 compoundings per year, there is not a significant effect with more compoundings.

## Summary

The compound interest calculator tells you how much more your investment will grow with compounding vs not having compounding.