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How to calculate interest


How do I calculate interest?

3401 day(s) ago

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Mr. Boxy
M = P(1+i) to the power of n

M - Total money including the interest and principle
P - Principle, the money you start out with
i - Interest rate in decimal form, i.e. 5% would be .05
n - Number of times the interest is compounded

Let's say you have a savings account with $1,000 in it, with an interest rate of 1.5% compounded once a year. You leave this money in the account for five years.

P = 1000
i = .015
n = 5

M = 1000(1 +.015) to the power of 5
M = 1000(1.015) to the power of 5
M = 1000(1.077284004)
M = 1077.284004

You now have $1,077.28 in your bank account.

When calculating interest on an account, check to see how often the interest is compounded. By law, interest is advertised by it's annual percentage rate (APY,) but it may be compounded more often. Most debt is charged daily, so a 20% APY will have a daily periodic rate of around 0.055%. This periodic amount will be printed on your monthly bill.

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