Compound Interest is a concept that’s notoriously hard for students to understand especially for those without any financial background/training like me.

However, it’s an important concept to understand because it can help you build a strong financial foundation and helps you keep track of loans or investments etc.

## What is compound interest and how does it work?

Compound interest is an interest rate that is applied to the original principal investment as well as all accumulated interest from previous periods. It is calculated by taking the original principal and adding the previously accrued interest to the new principal amount and then applying the interest rate to the new amount.

Over time, the compounding effect of adding the new interest to the principal amount can result in a dramatic increase in the total amount of money earned.

This type of interest is commonly used in financial products like savings accounts, investments, and mortgages.

The formula for compound interest is

``A = P(1 + r/n)^nt``

where:

• A is the final total amount
• P is the principal
• r is the interest rate
• n is the number of times the interest is compounded in a period
• t is the number of periods.

Compound interest can be easily calculated using a spreadsheet program like Google Sheets.

## How to calculate compound interest in Google Sheets?

To calculate compound interest in Google Sheets, you can take a look at the example below where to calculate the compound interest annually.

The Principal Amount (P) is 10,000 with an interest rate (r) of 0.04 which translate to 4%. The number of times of compound period (n)is 1 as it is annually. Lastly, the number of periods (t) is 10 which is 10 years. Hence, you can see this the final total amount is \$12,638.60

To use the formula based on this format, you can place this formula at B6 for the final total amount below:

``=B1*(1+B2/B3)^(B3*B4)``

### How to calculate compound interest by monthly compounding in Google Sheets?

You also can use this method to calculate compound interest monthly too simply by adjusting the value for n. The no of times of compound period per year (n) should be 12 since it is a monthly compounding.

The example should look something like this:

### How to calculate compound interest by daily compounding in Google Sheets?

Similarly, to calculate daily compounding, the number of times of compound period per year (n) should be 365.