How to Calculate Compound Interest With an Algebra Formula

Although there are computer programs that can automatically calculate compound interest, you can still use an algebra formula for the same purpose. By using the T=P(1+i)^n formula, you can calculate the growth of a savings account or another investment over a certain period of time.

Things You'll Need

• Scientific calculator

Instructions

1. Write down the amount of your initial deposit, the interest rate of your account and the number of years you plan to save your money.

2. Change the interest rate of your account into a decimal, and then add 1 to it. This completes the (1+i) portion of the formula. For example, if your account has an interest rate of 4%, then you would add .04 to 1 to get 1.04.

3. Take the result from Step 2 and apply the power of n, which is the number of years you will save your investment for. For example, if your result from Step 2 was 1.04 and you plan to save your your money for 10 years, then you would put 1.04 to the power of 10 to get approximately 1.48.

4. Multiply the result from Step 3 by the amount of your initial deposit, otherwise known as the principal. The result is the balance of your account after all compound interest has been accrued. For example, if your result from Step 3 was approximately 1.48 and you originally invested $5,000, then you would multiply 1.48 by $5,000 and get $7,400.

Resources

• Compound Interest Calculator