#### Compound Interest Formulas - Savings

When interest is added to the principal amount of deposit, and
then subsequent periods of interest earnings are based on the

*principal
and interest
amounts for the prior period(s) combined *there is said to
be compound interest. This compounding raises the level of earnings
over simple interest methods. The following are based on (1)
year periods.

**Daily compounding** over a year=

Principal Deposit (1+ % interest rate/365)^{365}
**Monthly compounding** over same =

Principal Deposit (1+ % interest rate/12)^{12}
**Quarterly compounding** over ditto =

Principal
Deposit (1+ % interest rate/4)^{4}
While the above are for single year
periods, the exponent changes when accounting
for other periods. To illustrate this point, monthly compounding
over a 3 year period at 3% per annum looks like:

Principal
Deposit (1.0025)^{36}
Where the period number, 36, is gotten by:

3x12mo.'s
= **36**
And the rate of interest arrived at by:

3/12
= .25% = **.0025**
As you can see, the main variable is the period of compounding.
Try for yourself and you will notice that the more often the
periods of compounding occur, the increased the
rates
of return that
go to the
account holder. Although this much depends on the advertised
rates from the bank, frequency of compounding could
potentially factor against the increase in the rate
of return. It therefore deserves further analysis based on
the rates and compounding cycles being offered.

*Quickly figure compound interest with our compound
interest calculator*.

**Continuous compounding, ** used to describe
compounding that is computed

*continuously* over
periods, generally goes to the benefit of the depositor, at
least by itself in concept. On another side of a
coin, it might not be so advantageous for
someone held to making loan payments.

*Quickly calculate
continuously compounded interest.*