# Compound interest formula: how to calculate The compound interest formula is a powerful tool that can help you grow your wealth over time. By understanding how compound interest works, you can make informed decisions about your investments and achieve your financial goals.

Compound interest how to calculate

Compound interest formula

A = P(1 + r)^t

Where:

• A is the future value of the investment
• P is the principal amount
• r is the annual interest rate
• t is the number of years

If you can only invest a small amount each year. use this formation to calculate

A = P (1 + r)^(t) + C * [(1 + r)^(t) – 1] / (r)

Example

P = \$100,000 (principal)

r = 10% = 0.10 (annual interest rate in decimal)

n = 1 (compounded once per year)

t = 20 (20 years)

C = \$0, \$100, \$300, or \$500 (additional annual contribution)

+ \$0 each year: The final amount (A) = \$100,000 * (1 + 0.10)^20 + \$0 * [(1 + 0.10)^20 – 1] / 0.10 = \$672,749.99

+ \$1000 each year: The final amount (A) = \$100,000 * (1 + 0.10)^20 + \$1000 * [(1 + 0.10)^20 – 1] / 0.10 = \$730,025

+ \$3000 each year: The final amount (A) = \$100,000 * (1 + 0.10)^20 + \$3000 * [(1 + 0.10)^20 – 1] / 0.10 = \$844,575

+ \$5000 each year: The final amount (A) = \$100,000 * (1 + 0.10)^20 + \$5000 * [(1 + 0.10)^20 – 1] / 0.10 = \$959,125

For this formula, You can see keys of compound interest formula

• amount of money you invest
• interest rate or return rate
• Time

## If you want to maximize power of compound interest

### Start early

The most important factor is Time in compound interest. The earlier you start investing, the more time your money has to grow. Thus you must be patience.

### Invest in high-growth assets.

When you invest, you want to choose assets that have the potential to grow at a high rate. High-growth assets like stocks and real estate can fluctuate in value. This means that you might not always make money on your investments, and you could even lose money. Therefore, it’s important to understand your own risk tolerance and invest accordingly.

### Amount of money you invest

The principle amount is the initial amount of money that you invest.

It is important because it is the foundation on which compound interest is built.

The more money you invest, the more interest you will earn, and the faster your money will grow.

### Invest regularly

Even if you can only invest a small amount each year, it will add up over time.

The key is to invest regularly and stay consistent with your contributions.