If you are interested in personal financial management, investing and business, I am sure you have heard the term. compounding then right?
So what is compound interest the greatest physicist of all time Albert Einstein consider compound interest the eighth wonder of the world? We invite you to learn more in this article.
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But before going into the detailed article, I will share the online compound interest calculator first, if you have a need to calculate, you can enter the data to get the results, then find out later 🙂
// NOTE
It happens very rarely. But if the tool does not display all the information you need to enter, please reload the page again.
#first. How to use the online compound interest calculator
It’s simple, please enter all the information, namely:
- Initial deposit amount: Enter the amount you deposited, this is the original amount you deposited.
- Annual interest rate (%): Enter the interest rate.
- Number of years (decimals can be entered): This probably doesn’t need any further explanation
- The term you are sending: You are sending a term of 1 year, 3 years or how many years, then enter.
Okay, now we will come to the detailed content of the article, let’s find out why the DOUBLE FAULT is considered the greatest invention of man!
#2. What is compound interest?
Compounding also known as accrued interest.
You can simply understand that when it is time to withdraw the interest, you do not withdraw but use that interest to deposit along with the original principal amount (principal + interest) => now, both capital and interest become into principal => and will calculate interest based on this total amount.
To explain it another way compound interest is the mother’s interest, the child’s interest there you guys!
Or you can understand: Compound interest is a form of reinvesting interest, new interest is added to the principal amount and ready for the next investment cycle.
Example 1.
The initial principal amount you deposit is 100,000,000 with an interest rate of 7% 1 year (with a term of 1 year, that is, profit is taken once every 1 year)
=> After 1 year you will receive 7 million interest, but you do not withdraw interest, now the bank will add interest with principal (107,000,000)D) to start calculating interest for the next deposit term.
In the 2nd year (next deposit cycle), the bank will calculate interest based on that 107,000,000 (interest will be calculated at that time).
And so on until you withdraw your money…
Often the debtors of pawn shops will understand very well the consequences of compound interest
#3. Compare simple interest and compound interest
Now I will take the example of simple interest and compound interest, it takes an example to see how big the difference is between simple interest and compound interest.
Example 2.
For example, the original deposit I deposited is 100,000,000 VNDD with an interest rate of 7% a year (deposit term is 1 year, ie take profit once every 1 year). After 20 years will I receive?
+) If it is calculated according to simple interest, it is as follows:
- 1 year I get 7 million profit.
- So after 20 years I get 140 million profit (20 years x 7 million interest).
+) If calculated according to compound interest, it is as follows:
- 1 year I get 7,000,000 VNDD profit from 100,000,000 VNDD principal.
- 2 years I received 7,490,000 VNDD from 107,000,000 VNDD principal.
- 3 years I received 8,014,300D from 114,490,000 VNDD principal.
- …..
- After 20 years I will receive the total amount 386,968.446D with 286,968,446 profits.
=> That is many times more than simple interest.
#4. Formula for calculating compound interest
Compound interest is calculated based on the following formula:
$F_n=P\left(1+\frac{i}{m}\
Of which:
- P: This is your initial capital amount.
- i: Is the annual interest rate (for example, if interest is 10%, then i = 0.1)
- n: Is the number of years sent
- m: Is the number of times of compounding (cumulative) in the year. For example, a 3-month term deposit will compound interest 4 times a year, and a 1-year term will compound interest once.
- Fn: Is the amount you will receive later
nfive.
#5. Epilogue
Yes, so through this article you have understood What is compound interest? and compound interest formula what is it. The power of compound interest is undisputed because it has been around for a very long time, now we just have to put it into practice.
Hope this article will be useful to you, good luck!
Kien Nguyen – Blogchiasekienthuc.com
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