- What is Compound Interest?
- How to Use Our Compound Interest Calculator?
- Why Does Compound Interest Matter?
- Simple Interest vs Compound Interest: What is The Difference?
- How Often is Interest Compounded?
- How Can Compound Interest Benefit You?
- How Can Compound Interest Work Against You?
- How to Create a Compound Interest Calculator in Excel?
Ever wondered how your savings grow over time or how interest impacts your loan repayments? Our Compound Interest Calculator helps you estimate future savings, investment returns, or loan interest costs in just a few clicks.
Compound interest is a financial game-changer—it can supercharge your savings and investments, but it can also make debts spiral out of control if left unchecked.
Whether you're planning for retirement with your CPF savings, investing in REITs or stocks, or comparing home loan rates in Singapore, understanding compound interest is a crucial financial skill.
So, what exactly is compound interest? How does it work? And how can you make it work for you? Let’s break it down.
What is Compound Interest?
Compound interest means earning interest on interest—not just on your original deposit (principal), but also on the accumulated interest. This creates exponential growth over time.
How does Compound Interest work?
Let’s say you deposit SGD 5,000 into a fixed deposit account with a 4% annual interest rate, compounded yearly.
- Year 1: You earn SGD 200 (4% of SGD 5,000), bringing your total to SGD 5,200.
- Year 2: You earn 4% on SGD 5,200, which is SGD 208, making your total SGD 5,408.
- Year 3: You earn 4% on SGD 5,408, and so on.
Over time, your savings grow faster because the interest keeps accumulating.
How is Compound Interest Calculated?
The formula for compound interest is: A = P (1 + r/n)^(nt)
Where:
- A = Final amount
- P = Principal (initial deposit or loan amount)
- r = Annual interest rate (as a decimal)
- n = Number of times interest is compounded per year
- t = Number of years
For example
You invest SGD 10,000 at a 5% annual interest rate, compounded monthly, for 10 years.
Using the formula: A = 10,000 × (1 + 0.05 / 12)^(12 × 10)
After 10 years, your investment grows to about SGD 16,470—a significant increase!
Want to calculate your own savings? Try our Compound Interest Calculator now!
How to Use Our Compound Interest Calculator?
Our free and easy-to-use compound interest calculator does the work for you. Simply enter the following details into the fields provided:
- Initial investment (starting amount)
- Investment duration (number of years)
- Regular contributions (if any)
- Contribution frequency (monthly, quarterly, semi-annually, or annually)
- Estimated interest rate
- Compounding frequency (daily, monthly, quarterly, or annually)
Once you've filled in these details, the compound interest calculator will instantly compute the total value of your investment and the total interest earned over time.
Why Does Compound Interest Matter?
The earlier you start saving or investing, the more time your money has to grow.
The Power of Starting Early
- Ryan starts investing at 25, contributing SGD 300 per month for 30 years. By 55, he has SGD 377,000.
- Sarah starts investing at 35, contributing SGD 500 per month for 20 years. By 55, she has SGD 293,000.
Even though Sarah contributes more per month, Ryan ends up with more money because he started earlier.
Time is the secret to maximising compound interest!
Simple Interest vs Compound Interest: What is The Difference?
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| How It Works | Interest is earned only on the original amount | Interest is earned on both the principal and previous interest |
| Formula | A = P (1 + rt) | A = P (1 + r/n)^(nt) |
| Growth Speed | Slower | Faster |
| Example | SGD 5,000 at 5% for 10 years earns SGD 2,500 | SGD 5,000 at 5% for 10 years earns SGD 3,144 |
If you’re borrowing money, simple interest is better because you only pay interest on the original loan amount (common in car loans and personal loans).
If you’re saving or investing, compound interest is better because your money grows faster over time.
How Often is Interest Compounded?
The frequency of compounding affects how fast your money grows.
| Compounding Frequency | Effect on Growth |
|---|---|
| Daily | Fastest growth |
| Monthly | Slower than daily but still strong |
| Quarterly | Moderate growth |
| Annually | Slowest growth |
Comparing Compounding Frequencies
You invest SGD 10,000 at 6% interest for 10 years.
- Annually compounded: Final amount = SGD 17,908
- Monthly compounded: Final amount = SGD 18,116
- Daily compounded: Final amount = SGD 18,150
The more frequently interest is compounded, the more you earn.
How Can Compound Interest Benefit You?
Compound interest is a powerful tool for:
- Growing savings – The earlier you save, the more your wealth grows.
- Building retirement funds – CPF accounts benefit from long-term compounding.
- Maximising investments – Stocks, REITs, and ETFs thrive with reinvestment.
How Can Compound Interest Work Against You?
While compound interest helps grow savings, it can also increase your debt if not managed properly—especially with credit cards and high-interest loans.
For example
You have a SGD 5,000 credit card balance with a 24% interest rate, compounded monthly.
If you only pay the minimum, you could end up paying thousands in extra interest over time.
Tip: Always pay more than the minimum on loans and credit cards to reduce interest costs.
How to Create a Compound Interest Calculator in Excel?
Want to track your savings in Excel? Follow these steps:
Step 1: Set Up Your Excel Sheet
| A | B |
|---|---|
| Principal Amount (SGD) | 10,000 |
| Annual Interest Rate (%) | 5 |
| Compounding Frequency (Times Per Year) | 12 |
| Years | 20 |
| Future Value (SGD) | (Formula Here) |
Step 2: Enter the Formula
In Cell B5 (Future Value), enter this formula: =B1 * (1 + (B2/100) / B3) ^ (B3 * B4)
Press Enter, and Excel will calculate the final amount based on compound interest.
Step 3: Create a Growth Table
To track year-by-year growth, use: =B1 * (1 + (B2/100) / B3) ^ (B3 * A7)
Drag the formula down to calculate the compound interest for each year.
Step 4: Visualise Your Growth
- Highlight your data → Click "Insert Chart" → Select "Line Chart".
- Adjust values in B1 to B4 to test different scenarios.
Understanding compound interest can help you make smarter financial decisions—whether you’re saving, investing, or managing debt.
Want to see how much your savings will grow? Try our Compound Interest Calculator now!
