QuickCalcy money guide
Compound Interest Guide: Frequency and Growth
Compound interest adds earned interest to principal, allowing later periods to earn on a larger base.
The formula
QuickCalcy divides the nominal annual rate by the selected number of compounding periods and applies that growth factor across all periods. Options include annual, half-yearly, quarterly and monthly.
Why frequency matters
More frequent crediting lets interest begin earning additional interest sooner. The frequency should match the product being modeled, not simply the option that produces the largest maturity value.
Nominal and effective growth
Periodic compounding can make effective annual growth slightly higher than the nominal rate. Hold principal, time and rate constant when comparing frequencies.
Mistakes and limitations
- Do not apply compound growth to simple-interest products.
- Do not treat market returns as a fixed credited rate.
- Match the actual product convention.
The estimate excludes deposits, withdrawals, taxes, fees and variable rates.