Compound Interest Formula Explained, With Examples
Every compound interest result comes from one formula. Once you understand what goes into it, you can sanity-check any figure you are given, whether by an employer, a bank, a teacher or another website.
The formula
A = P(1 + r/k)^(k·t).
What each input means
- Initial amount (S$): the value you enter in the calculator.
- Annual rate (%): the value you enter in the calculator.
- Years: the value you enter in the calculator.
- Compounding: choose from Yearly, Quarterly, Monthly, Daily.
Example
For example, with these inputs:
- Initial amount (S$): 10,000
- Annual rate (%): 4
- Years: 10
- Compounding: Monthly
the calculator returns:
- Final amount: S$14,908.33
- Interest earned: S$4,908.33
How the result changes
The table keeps the other inputs at their example values and changes initial amount (s$).
| Initial amount (S$) | Final amount | Interest earned |
|---|---|---|
| 10,000 | S$14,908.33 | S$4,908.33 |
| 5,000 | S$7,454.16 | S$2,454.16 |
| 7,500 | S$11,181.25 | S$3,681.25 |
| 12,500 | S$18,635.41 | S$6,135.41 |
| 15,000 | S$22,362.49 | S$7,362.49 |
Why it matters
Interest rates, instalments and returns compound over years, so a small difference in rate or tenure turns into thousands of dollars. Working the numbers out yourself makes it easier to compare bank offers, avoid expensive debt and plan savings goals.
Cars in Singapore carry costs found almost nowhere else, including the Certificate of Entitlement and the Additional Registration Fee. Loans are capped at 60% or 70% of the price depending on the car's Open Market Value, and the maximum tenure is seven years.
Compounding is the reason long-term saving works: returns earn further returns, so the growth curve steepens over time. The same maths works against you with debt, which is why credit card balances at around 27% a year grow quickly if only minimum payments are made.
Inflation erodes buying power, so a savings goal set in today's dollars needs to be adjusted upwards for the years it will take to reach it. Singapore's core inflation has varied widely over the past decade, so it is worth testing a range of rates.
Related calculations
- Emergency Fund Calculator: Sets a target for your rainy-day savings.
- Net Worth Calculator: Adds up what you own minus what you owe.
- Debt-to-Income Ratio Calculator: Shows what share of income goes to debt.
- Rule of 72 Calculator: Estimates how long money takes to double.
Use the Compound Interest Calculator to plug in your own numbers.
Run your own numbers: Compound Interest Calculator