This article was co-authored by Chad Seegers, CRPC®. Chad Seegers is a Certified Retirement Planning Counselor (CRPC®) for Insight Wealth Strategies, LLC in Houston, Texas. Prior to this, Chad worked as a Private Wealth Advisor for Sagemark Consulting for over ten years, where he became a select member of their Private Wealth Services. With over 15 years of experience, Chad specializes in retirement planning for oil and gas employees and executives as well as estate and investment strategies. Chad is a supporting member of the World Affairs Council and an emerging leader with the Global Independence Center (GIC).
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Compound interest is distinct from simple interest in that interest is earned both on the original investment (the principal) and the interest accumulated so far, rather than simply on the principal. Because of this, accounts with compound interest grow faster than those with simple interest. For example, if your interest compounds annually, that means that you’ll gain more interest in the second year after your investment than you did in the first year.^{[1] X Expert Source Chad Seegers, CRPC®Certified Retirement Planning Counselor Expert Interview. 16 July 2020. } Additionally, the value will grow even faster if the interest is compounded multiple times per year. Compound interest is offered on a variety of investment products and also charged on certain types of loans, like credit card debt.^{[2] X Research source } Calculating how much an amount will grow under compound interest is simple with the right equations.
Alternative: For a quick and easy method of calculating compound interest, use the continuous compounding formula. This formula allows you to calculate the maximum future value of your investment based on a theoretically infinite number of compounding periods within a given length of time. To calculate continuous interest, use the formula , where FV is the future value of the investment, PV is the present value, e is Euler’s number (the constant 2.71828), i is the interest rate, and t is the time in years.
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