Ever wonder how much interest you will earn? A compound interest calculator is a powerful tool for anyone who wants to save money and calculate compound interest. This tool will teach you how to calculate and use one in order to make your money work better for you. We’ll also explore the benefits of a compound interest rate, including the long-term effect it has on your savings account or investment portfolio.
- Compounding Interest Calculator
- The Power Of Compounding
- What is compound interest?
- Compound Interest Formula
- What is the compounded annually formula?
- Compound Interest Investments
- Investment Accounts That Compound Interest
- Accounts That Charge Compound Interest
- Triple Compounding: The Power of Tax-Deferral
- Conclusion
- Frequently Asked Questions
Compounding Interest Calculator
How much interest will I pay or earn? Our calculator uses compound interest calculations on future values and includes a number of compounding periods including an annual, quarterly, semi-annually, monthly, weekly, and daily basis to solve the total interest on your investment.
The Power Of Compounding
Learn how interest is calculated and the power of calculating compound interest over time for retirement.
What is compound interest?
The compound interest definition is earning interest on both your original money and the money you save. Because interest compounds, the accrued interest allows your savings to grow faster over time.
Calculating interest on a savings account that pays compound interest, the return gets added to the original principal at the end of every compound period. This means that the larger balance earns more interest, which leads to higher yields. The time period can be daily or monthly, depending on the account.
There are many different places you can save your money with various compounding periods. For example, you could save it in a savings account, or you could put it in a Roth IRA or traditional IRA. You could also save it in a certificate of deposit (CD).
Compound Interest Formula
Compound interest formulas are the interest rate you earn on your money during a compounding period in a savings account at a financial institution or insurance company. When there’s compound interest, it means that the money you earn each year is added to the money you already have. So, instead of just growing, the accumulated interest grows at an increasing rate which is really helpful for saving for retirement or investing in stocks. Compound interest also accounts for the effects of inflation and repaying debt. When calculating interest, interest compounding grows faster than at a simple interest rate.
What is the compounded annually formula?
The compounded annually formula is used to calculate the interest that is earned on an investment over a period of time. This formula takes into account the effects of compounding, which is when interest is earned on both the principal amount invested and on any interest that has been earned previously. The compounded annually formula can be used for investments such as savings accounts, bonds, and stocks.
To calculate the compounded annually formula, you will need to know the following information:
- The principal amount invested
- The interest rate
- The number of years the investment will be held
Here is the formula:
F = P(1 + i)^n
Where:
- F = Future value of investment
- P = Present value of investment
- i = Interest rate (expressed as a decimal)
- n = Number of years the investment will be held
For example, if you invest $1,000 at an interest rate of 5% for 10 years, the future value of your investment would be:
F = 1000(1 + 0.05)^10
F = $1,627.28
Compound Interest Investments
When you invest in the stock market, you don’t earn a set interest rate like you would with a savings account. Instead, you get a return based on how much your investment changes in value. If the value goes up, you make money. If it goes down, you lose money.
With that said, if you leave your money in the market, the returns you earn will be compounded over time increasing your future value.
If you save and invest over a long period of time, compounding can help you reach your financial goals. This is because you will earn more money on your initial balance than what you started with.
Investment Accounts That Compound Interest
The following savings plans offer compound growth:
- Savings account at a bank or credit union
- Certificate of deposit (CD)
- Investment account with a brokerage firm
- Money market account
- 529 college savings plan
- Retirement accounts, such as a 401(k), 403(b), or Individual Retirement Account (IRA)
- Deferred Annuity
- The cash value in a permanent life insurance policy.
Accounts That Charge Compound Interest
The following lines of credit charge compound interest:
- Mortgage
- Home equity loans
- Auto loan
- Student loan
- A personal loan from a bank or credit union
- Small business loan
- Credit card accounts
Triple Compounding: The Power of Tax-Deferral
Now that you understand how compound interest grows, learn how to speed up the compound annual growth rate. Here’s how triple compounding with tax-deferred growth works:
- First, the initial investment earns compounding interest on your principal.
- Second, the principal amount then earns compounded interest on your interest earned.
- Finally, the initial principal earns interest on the money you normally lose to taxes.
The end result is your annual interest rate compounds faster than any bank account including savings accounts, money market accounts, and CDs.
Certificates of Deposit vs. Fixed Annuity
The Top Fixed Annuities
Fixed annuities offer a guaranteed return for a set amount of years, similar to a CD. Guaranteed crediting rates for the terms below:
- 2-YEAR TERM: 3.50%
- 3-YEAR TERM: 4.30%
- 4-YEAR TERM: 4.15%
- 5-YEAR TERM: 4.30%
- 6-YEAR TERM: 4.30%
- 7-YEAR TERM: 4.50%
- Grow your money as fast as possible
- Principal protection
- The interest rate is locked for the term you select
- Tax-deferred growth
- Withdraw annually without penalty
- Lump-sum death benefits
- Accepts cash, 401(k), and IRA Funds
What’s The Difference Between a Fixed Annuity and a CD?
| Feature | Fixed Annuity | CD |
|---|---|---|
| Who Offers | Insurance Company | Banks |
| Premium Amounts | $2,500 to $1 Million | $500 – No Maximum |
| Terms | 2 Years to 20 Years | 3 Months to 7 Years |
| Guaranteed Interest Rates | Up to 4.50% | Up to 2.50% |
| Triple Compounding | Yes | No |
| Principal Protection | Yes | Yes |
| Can Lose Money? | No | No |
| Liquid After Term | 100% | 100% |
| How Are Gains Taxed? | Tax-Deferred | Taxed Annually |
| Annual Liquidity | Up to 10% Annually | No Liquidity |
| Who Protects My Money? | Insurance Company/SGA | FDIC |
| Accepts IRA | Yes | No |
| Accepts 401(k) | Yes | No |
| Death Benefit | Lump-Sum | Lump-Sum |
Are Annuities FDIC Insured?
Fixed annuities are not FDIC insured but have similar protections for your money. An annuity is an insurance policy guaranteed by the insurance company’s claims-paying ability. The insurance companies are members of the state insurance guarantee associations in each state where they do business. Each state insurance guarantee association protects consumers in the unlikely event the insurance company fails and defaults on their obligations to their consumers (limits vary per state).
For example, Georgia insures up to $250,000 of the annuity’s cash value per insured life if the insurance company becomes insolvent and can not fulfill its obligations to the insured.
Conclusion
If you would like to know how much interest your investment will earn, our compound interest calculator can help. The calculator uses compound interest calculations on future values and includes a number of compounding periods including an annual, semi-annually, monthly, weekly, and daily basis to solve the total interest on your investment. To request a quote for our services or learn more about our products and solutions, contact us today.
Frequently Asked Questions
How much interest do 2 million dollars earn?
Using our compound interest calculator, $2,000,000 invested can earn up to $335,480 in interest over five years. The interest is determined by the premium amount, the annuity’s term, and income withdrawn from the annuity.
How much interest do 5 million dollars earn per year?
Using our compound interest calculator, $5,000,000 invested in a fixed deferred annuity can earn up to $167,740 per year in interest over five years. The interest is determined by the premium amount, the annuity’s term, and income withdrawn from the annuity.
What is the yearly interest on 10 million dollars?
Using our compound interest calculator, $10,000,000 invested in a fixed deferred annuity can earn up to $335,480 per year in interest over five years. The interest is determined by the premium amount, the annuity’s term, and income withdrawn from the annuity.
How much interest do 20 million dollars earn?
Using our compound interest calculator, $20,000,000 invested in a fixed deferred annuity can earn up to $3,354,800 in interest over five years. The interest is determined by the premium amount, the annuity’s term, and income withdrawn from the annuity.
How much interest will I earn per month?
Assuming you’re asking about how much interest you’ll earn on your savings account balance, the answer depends on the account’s interest rate and how much money is in the account. For example, if you have a savings account with a $10,000 balance and an interest rate of 1%, you’ll earn $100 in interest each month.
How do you manually calculate compound interest?
Assuming you would like a formula for calculating compound interest:
A = P(1 + r/n)^nt
P = principal amount (the initial amount you borrow or deposit)
r = annual interest rate (as a decimal)
n = number of times the interest is compounded per year
t = number