Overview

Main Menu Name: Deposit

Shows the effect of compound interest on an investment by showing how money grows at various interest rates. It calculates the future value of money at three different interest rates (compounding every year) for 50 years.

In this article:

• Background
• Getting Started
• Entering Data
• Results

Background

This calculation shows the effect of compound interest on a hypothetical investment by showing how money grows at various interest rates. It calculates the future value of money at three different interest rates for compounding periods of up to 50 years.

This calculation demonstrates the significant effect that compounds interest has on money. It does this by compounding three lump sums at three different interest rates.

The calculation also illustrates the importance of shopping around for a higher interest rate. Even a slightly higher rate results in a significantly greater future value.

For example, a lump sum of $10,000 at 10% interest for five years would result in a sum of $16,105. The same lump sum for five years at 12% interest results in $17,623, a difference of $1,518 over only a short period of time.

Getting Started

This calculation demonstrates the significant effect that compounds interest has on money. It does this by compounding three lump sums at three different interest rates. The calculation also illustrates the importance of shopping around for a higher interest rate. Even a slightly higher rate results in a significantly greater future value. For example, a lump sum of $10,000 at 10% interest for five years would result in a sum of $16,105.The same lump sum for five years at 12% interest results in $17,623, a difference of $1,518.

Entering Data

Enter up to three investments:

1. Interest Rate:  Enter the interest rate applied to each investment.
2. Amount:  Enter the principal amount to be compounded for each investment.
3. Years of Growth:  Enter the number of years that the money will grow.

Results

The Summary Tab displays the future value of three given sums of money compounded at the three interest rates specified. The results illustrate the effect that compound interest has on a sum of money by showing how the amount increases at various interest rates. Results for the three sums are displayed for compounding periods of 1 to 50 years.