## Answers the Question

How much will I earn from compounded interest?

## Calculator for Compound Interest

## What Is the Compound Interest?

Compound interest is one of the most important features of modern finance.

Whereas simple interest looks at growth upon a constant principle, compound interest adds in the interest generated on previously recorded interest. This means that values grow larger and larger each year. As a lender, this means that larger and larger sums will be earned each year. As a debtor, it means that more and more money will be owed each year.

## Why Is it Important?

- Most investments use compound, rather than simple, interest. It can be more complex to understand and calculate. Fortunately, this page will perform the calculations for you.

## Formula(s) to Calculate Compound Interest

- PRINCIPAL * (1 + INTEREST RATE) ^ YEARS

## Common Mistakes

- Forgetting to add "1" to the interest rate before applying the number of years as an exponent.
- Not understanding hard limits that may be placed on the growth of the investment or loan. Many lenders, for instance, will cap the size to which loans can grow. Similarly, many debts may be cancelled, should their balances grow too large.