## How to Calculate Compounded Interest Rate From Your Investment

Today, I am going to share to you a cool online tool where you can easily calculate the interest rate of your investment if the interest scheme is compounding. But first, we are going to learn what is compounded interest scheme.

## What is Compounded Interest?

A compounded interest is a financial term where the investing institution compounds the interest from your investment yearly or monthly. Meaning if your investment has an interest rate of 5% your gain from the first year/month is added to your face amount and then the whole amount will now gain another 5% on the succeeding year and so on and so forth until you reach the maturity date.

Unlike straight interest where the amount you have invested will gain a fix rate from your face amount. Meaning if you have investment \$1,000 at 5% interest per annum with the maximum of 5 years term. You only gain \$250 in total. While at the compounding interest scheme your \$1,000 investment on the same interest rate will gain a total of \$276.28 on the maturity date.

It is easier to give you an example on how compounded interest works and how to calculate it correctly.

Example: You have invested \$1,000 which has 5% interest rate annually, your \$1,000 will gain \$50 on the first year. In total you will have \$1,050 on the first year of your investment, now this amount will be counted for the next years interest rate. On the second year your \$1,050 will gain another \$52.50 interest, you will now have a total of \$1,102.5 on the second year. This process will continue until you reach the maturity date.