How to Calculate Compound Interest | Loans | Mozo

Calculating monthly compound interest · 1. Divide your interest rate by 12 (interest rates are expressed annually, so to get a monthly figure, you have to divide ... AdvertisementMozoInterestRatesGuidesCompoundinterestcalculatorCompoundinterestcalculatorGotanicerainydayfundbuiltup?Giveitanextraboostwithcompoundinterest.Ifyou’rewonderinghowmuchyou’reearningthankstoyourcompoundinginterestpayments-orhowmuchyoumightbewiththerightsavingsaccount-thenreadthisrundownofhowtoworkitout.Or,ifyou’relookingtofindouthowmuchinterestyou’repayingonaloan,findouthere.Whatiscompoundinterest?Weallknowwhenyouputmoneyawayinabank,youearninterestonit,usuallyeachmonth.Whenyouearncompoundinterest,thepreviousmonth’sinterestisincludedinyournewbalance,soyouearninterestonthataswell.Atfirstitmightnotseemlikeitmakesahugedifference,butahighinterestrateoveranumberofyearscanbeagreatwaytokeepyoursavingsaccountlookinghealthy.ThebenefitsofcompoundinterestCompoundinterestisamoreeffectivewayofearningthansimpleinterest,whichonlyworksonyourinitialdeposit.Forexample,ifyouhad$25,000inasavingsaccountearning4%simpleinterestp.a.,you’dhave$30,000in5years.Ifyouhadthesame$25,000inasavingsaccountearning4%p.a.compoundingmonthly,you’dhave$30,525.That’s$500moreinyourpocket,andyoudidn’thavetoliftafinger.TheflipsideWhilecompoundinterestisgreatforyoursavingsaccount,it’snotsogoodforloanrepayments.Forhome,personalorcarloans,yourinterestisbuiltintothemonthlyrepayments,soyoudon’thavetothinkaboutit.Withcreditcarddebtitbecomesalittletrickier.Ifyou’reonlymakingtheminimumpaymentsonyourcreditcardbalance,you’renotreallygettinganywhereasfaraspayingofftheprincipalgoes,andinterestcancompoundquickly.WhatyouneedtoknowReadytocalculateyourcompoundinterest?Thereareafewthingsyoushouldknowfirsttomaketheprocessabiteasier.Howmuchhaveyousaved?You’llneedtoknowyourinitialdeposit,orthebalanceofyoursavingsaccountatpresent.Thisiswhattheamountofinterestisbasedon.Howlongwillitearninterest?Areyoursavingsparkedforthenextfiveyears?Orhaveyouonlystashedthemawayinahighinterestsavingsaccountforafewmonthstogivethemaboost? Whatistheinterestrate?Obviously,you’llneedtoknowyourinterestratetoworkouthowmuchinterestyouearn.Thestandardannualinterestrateisprobablytheoneyousawwhencomparingsavingsaccounts,andthat’stheoneyou’llneed.Becarefulnottomixitupwithintroductoryorbonusrates,butbesuretoaccountforthoseinyourcalculationsHowoftenwilltheinterestbepaid?Interestwillusuallybecalculateddailyandbepaidmonthlyorannually.You’llseetheeffectsofcompoundingasoftenasyourinterestispaid.Ifyourinterestcompoundsmonthly,you’llearnmore,becauseitwillbebeingcalculatedonahigherbalanceeachmonth.Willyoumakeregulardeposits?Gotabonusatwork?OrdidAuntyJansendyouacashChristmaspresentthisyear?Ifyoufindyourselfwithextrafunds–orifyou’reasavvysaverandputawaypartofyourpaycheckeveryweek–andmakeadepositintoyoursavingsaccount,thatwillgiveyouabiggerbalanceandmoreinterest.CalculatingannualcompoundinterestMathematicallychallenged?Don’tworry,justheadrightonovertooursavingscalculatorpagetocrunchthenumbers.Butifyou’redeterminedtoputyourmathsskillstothetesthere’showyoucalculatecompoundinterest:1. Add1toyourinterestrate(expressedasadecimal)2.Thisvalueisputtothepoweroftheamountofyearsyouwanttoleaveyoursavingsfor3.Multiplytheresultbythe'principal',whichisthecurrentbalanceofyouraccount4.You’llhavethenewbalanceofyouraccountHere’sanexample:Ifyouput$10,000awayinasavingsaccounttoearn3%p.a.for2years,thecalculationstoworkoutyourcompoundinterestmightlooklikethis:Andyoucouldseethatyourcompoundedinterestwouldbe$609forthetwoyearterm.Calculatingmonthlycompoundinterest1.Divideyourinterestrateby12(interestratesareexpressedannually,sotogetamonthlyfigure,youhavetodivideitbythenumberofmonthsinayear.)2.Add1tothistoaccountfortheeffectsofcompounding3.Putallthistothepowerofthenumberofmonthsyoursavingswillbeputaway4.Multiplyitallbythe'principal',whichisthecurrentbalanceofyouraccount5.You’llhavethenewbalanceofyouraccountAlittleconfused?Let'sgobacktoourexample:Ifyoutook$10,000at3%p.a.,andputitawayforthesametwoyears,butwithinterestcompoundingmonthly,you’dcalculatetheinterestlikethis:Andifyoulookattheexampleabove,youcanseethatbycompoundingmonthly,you’vemadeanextra$8.57.Howaccurateisthis?WelikenumbershereatMozo,butwe’renotcomputers,andevenwemakemistakessometimes.Thisisatriedandtrueformulaforworkingoutcompoundinterest,butyoucouldfindyourcalculationscomeoutafewcents(ormaybeevenadollarortwo)offtheexactamount,becauseofthingslikeroundingandgoodoldfashionedhumanerror.Whenweputtheaboveexamplethroughoursavingscalculator,whichhasallthebenefitsofbeingacomputerandhavingitstimestableshardwiredin,itcalculatedthenewbalanceas$10,618.Andc’mon,it’snotexact,butthat’sprettyclose.MozoGetthemoneyzonenewsletterEmailAddressSignmeupformoney-savingtips,hotoffersandexpertinsights.IagreetoMozo'sprivacypolicySubmitInterestRatesHomeLoansInterestRatesSavingsAccountInterestRatesTermDepositInterestRatesAnnualinterestrateCalculateinterestonloanWhatisacomparisonrate?|MozoReadmoreinterestrateguidesNewmortgagerules,Starlinksatellitebroadband&RBAdropsyieldcurvecontrol:Thisweek’sbestbankingnewsTravelinsuranceCOVIDcover,net-zeroby2050&QRcodepayments:Thisweek’sbestbankingnewsAussiesrelyonbankofMum&Dad;26%ofSydneyapartmentshaveflaws&howtofaceyourfinancialfearsthisHalloween:Thisweek’sbestbankingnewsReadmoreinterestratenewsDisclaimerWhoweareandhowwegetpaidOurgoalatMozoistohelpyoumakesmartfinancialdecisionsandouraward-winningcomparisontoolsandservicesareprovidedfreeofcharge.Asamarketplacebusiness,wedoearnmoneyfromadvertisingandthispagefeaturesproductswithGoToSitelinksand/orotherpaidlinkswheretheproviderpaysusafeeifyougototheirsitefromours,oryoutakeoutaproductwiththem.Youdonotpayanyextraforusingourservice.Weareproudofthetoolsandinformationweprovideandunlikesomeothercomparisonsites,wealsoincludetheoptiontosearchalltheproductsinourdatabase,regardlessofwhetherwehaveacommercialrelationshipwiththeprovidersofthoseproductsornot.'Sponsored','Hotdeal'and'FeaturedProduct'labelsdenoteproductswheretheproviderhaspaidtoadvertisemoreprominently.'Mozosortorder'referstotheinitialsortorderandisnotintendedinanywaytoimplythatparticularproductsarebetterthanothers.Youcaneasilychangethesortorderoftheproductsdisplayedonthepage.LearnmoreaboutMozo.Importantinformationonterms,conditionsandsub-limitsTerms,conditions,exclusions,limitsandsub-limitsmayapplytoanyoftheinsuranceproductsshownontheMozowebsite.Theseterms,conditions,exclusions,limitsandsub-limitscouldaffectthelevelofbenefitsandcoveravailableunderanyoftheinsuranceproductsshownontheMozowebsite.PleaserefertotherelevantProductDisclosureStatementandtheTargetMarketDeterminationontheprovider'swebsiteforfurtherinformationbeforemakinganydecisionsaboutaninsuranceproduct.