Article
Compound interest
Interest is added to the principal, and the next year it is counted on a larger sum. With yearly compounding the formula is short enough to check on paper.
The compound interest calculator does this. A term with months and withholding is on term deposit.
The idea in brief
In year one, interest is calculated on 10000. In year two the bank already starts from a larger sum. That is why a decade grows by more than ten times 6%.
This card does not subtract withholding tax. For tax on a deposit, use the deposit page.
On this page: Withholding tax is tax taken from interest before you receive it. This card does not subtract it. In (1 + r)^n, r is the rate as a decimal, so 6% is 0.06, and n is the number of years. Compounding means interest is added to the principal.
When this helps
| Situation | What the card shows |
|---|---|
| You want to see how much more compounding pays than simple interest. | Principal and rate stay the same. Once you use the power of years, and once you only multiply the rate by the years. |
| You want the result after ten years at a fixed rate, with no extra deposits. | The card shows the finish and the interest. It does not add deposits along the way. |
| You want clean compound interest, with no withholding tax and no months. | This card does not subtract withholding tax and does not count months. That is on the deposit page. |
The formula on this card
Final amount = principal × (1 + rate/100) to the power of years. Interest is the finish minus the start. 10000 at 6% for 10 years lands near 17908.48, so interest is about 7908.48.
Compounding is once a year. There are no deposits along the way and no tax. This is not a bank term that withholds tax and sometimes counts months. If you want to see tax reduce the gain, use the deposit card.
Why compare it
The same principal at 6% for 10 years without compounding (rate times years only) would add 6000 of interest. Compounding writes the rest, because interest works too. The longer the span, the clearer the gap. The card does not promise that a bank will pay 6% for a decade.
A worked example
10000 at 6% for 10 years
Finish = 10000 × 1.0610 ≈ 17908. Interest ≈ 7908. No deposits along the way and no tax.
Typical numbers from the card
| Inputs | Result |
|---|---|
| You start with 10000 at 6% for 10 years, compounded once a year. | The finish is about 17908.48, so interest is about 7908.48. |
| The same 10000, 6%, and 10 years, but without compounding. | Interest is then 6000, because you only multiply the rate by the years. |
| The rate is zero. | The finish equals the principal, and interest is zero. |
Typical mistakes
| Mistake | What goes wrong | How to avoid it |
|---|---|---|
| You expect this card to subtract withholding tax. | The result will differ from the deposit page, because there is no tax here. | Count withholding tax on the deposit page. |
| You want to add monthly deposits on this card. | That formula is not here. This card uses one starting principal and yearly compounding. | Keep this card at one principal and compounding once a year. |
| After a decade you take ten times 6% and treat that as the result. | Interest comes out too low, because compounding is missing. | Compounding multiplies the principal by (1 + rate) to the power of the years. |
Before you compare offers
- Principal, rate, and years come from the same assumption.
- On this card, compounding is once a year.
- There are no deposits along the way and no tax.
- Six percent is the number you type, not a live rate from a bank.
Frequently asked questions
What is 10000 at 6% for 10 years?
About 17908. Formula: 10000 × 1.06^10, no deposits and no tax.
Does this include withholding tax?
No. This card stops at pre-tax interest. Withholding lives on the deposit page.
Can I add monthly deposits?
Not on this card. Here you get one starting principal and yearly compounding.
How is this different from a term deposit?
The deposit card can do months and tax. Compound interest stays on a clean (1 + r)^n.
What if the rate is zero?
The finish equals the principal. Interest is zero.
Is 6% a live bank offer?
It is the number you type. The card does not fetch a rate table.