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For other compounding frequencies (such as monthly, weekly, or daily), prospective depositors should refer to the formula below. It is also worth knowing that exactly the same calculations may be used to compute when the investment would triple (or multiply by any number, in fact). All you need to do is just use a different multiple of P in the second step of the above example. Imagine you’ve invested $1000 with simple interest of 10% per year. What would happen if you made the same investment but with annually compounded interest?
Compounding can help fulfill your long-term savings and investment goals, especially if you have time to let it work its magic over years or decades. If you’re
receiving 6% then your money will double in about 12 years. We’ll use a longer investment compounding period (20 years) at 10% per year, to keep the sum
simple. Mathematically, compound Interest means to calculate interest on the principal amount along with accumulated interest over the periods. In simple terms, compound interest means the interest on interest. The daily reinvest rate is the percentage figure that you wish to keep in the investment for future days of compounding.
To calculate interest compounded monthly, you need to divide the interest rate by 12 and multiply the number of years by 12, since the interest is compounded 12 times in a year. If you prefer using the FV function for the same problem, then you will have to tweak the formula a little. Since interest is compounded 12 times in a year, your interest rate per month becomes rate/12, while the number_of_periods is the number of periods in a year times the number of years. I created a compound interest calculator to help you quickly find these results.
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This way, you’ll see how the frequency of compounding – yearly, monthly, daily – affects the outcome, even when all other variables have the same values. Essentially, with compound interest, you’re reinvesting your profits and earning further interest on that larger sum. The frequency with which interest is compounded can vary greatly, from yearly to daily. The more frequently interest is compounded, the greater the final amount will be.
