(Original Amount + Earned Interest) x Interest Rate x Time On Deposit = Total Interest Earned
Enter the amount of the initial savings deposit (the principal) and the compound interest rate. Then determine the length of the deposit time period in the units of compound calculation. Select the frequency of compounding. (If you select quarterly frequency for compounding and the duration is 2 years, the length of the deposit is 4 x 2, or 8 units. It is also possible to select three different kinds of daily compounding. It is also possible to say you only got interest on 364 days of a 365 day frequency, or 3 quarters of a quarterly compounding agreement.) Click on Calculate and determine the Total Interest, Interest per period, Average Compounding Earnings and the Adjusted Yield, taking into consideration both taxes and inflation if entered.
Note. The above calculations are approximate when you allow for taxation and inflation. This is due to the timings of tax payments and inflation and the way we are forced to make assumptions about these timings for these calculations. However it does show clearly the effect of taxation and inflation.
For example. Assume you invest $10,000 for 20 years, compounding monthly at 12% per year. Traditional compounding calculations show that you have the staggering sum of $108,925.54. (Enter the $10,000, 20 years by 12 months = 240 units of compounding, select monthly, set 0 for tax and 0 for inflation. Click on Calculate.)
However, unless this money is in an IRA or other tax-free vehicle, with zero
inflation, you REALLY end up with much less in retained earnings. For example, with the same numbers above but with an annual tax payment of 30% and 3% inflation, you end up with just $29,252 in real time buying ability terms. In other words. Let's say that you could buy a small car today for $10,000. Save that money for 20 years and you can buy a luxury car instead. Now try just changing the interest rate to a bank CD rate of 6% per year and
the same 30% taxation and 3% inflation. After 20 long years you end up with just
over $12,000 in today's money terms.
This calculator helps you to understand how much money you can accumulate by saving money into an account with interest compounded with different compounding periods. The calculator will show you the amount that accumulates over a period of time after tax and inflation. It assumes that all money is earning interest at this rate throughout the period chosen. Do not enter "$" signs or "," s between the thousands. You may also use this effectively without the taxation or inflation factors by simply placing zeros (0) in the fields.