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by clicking the link: Compound interest
I. Let's assume, we put 1000$ into bank deposit with 5% interest rate. After first year, we get 50$ interests, so our total capital become 1050$. Let's say, that we put total amount (it means 1050$) to the same deposit next year. Interest rate is still 5%, but base to compute interest value is 1050$ (instead of 1000$ in first year).
Let's try to summarize:
- First year: we put 1000$, get 50$ of interests (5% from 1000$)
- Second year: we put 1050$, get 52.50$ of interests (5.25% from 1000$)
- Third year: we put 1102.5$, get 55.125$ of interests (5.51% from 1000$)
- etc...
II. Unfortunately, the same mechanism can also work against us. If we repeat calculations done above, but assumming, that we lose instead of earning ("negative interest rate"), then it turned out that we lose more and more each year.
Some form of money loss is inflation. Let's say, we put our money under the carpet (instead of bank deposit in first example). What is going on with our money? It's true that amount doesn't change in time - 100$ bill will be still the same 100$ bill after few years. However - it turned out - that it's real value can be smaller in future. The reason of this is price growth. If prices are going up, we can buy less for the same money, so our money are effectively worth less. It's so called decline in purchasing power of money - or simply speaking - inflation.
- Initial capital - it is amount of money used as base for calculations. Calculla will show you how real worth of this amount will be changing in future.
- Inflation - it is expected inflation rate for next years. If you want simply show result of investments without including inflation, then you can set this field to zero.
- Rate of interest - it is average investment income expected in next years. If you set this field to zero, then you'll see what's gonna happen when you put your money "under the mattress".
- Years to predict - time range to simulate (in years). For example, if you want to check real worth of your money after ten years, set this field to 10.
| Initial capital | |
| Annual inflation (expected) | % |
| Expected rate of return | % |
| Years to predict | years |
compound_interest · compound_inflation · compound_rate_of_return · real_worth_of_money · money_worth · money_worth_forecast
Tags to Polish version:
procent_skladany · skumulowana_inflacja · skumulowana_stopa_zwrotu · wartosc_pieniadza · wartosc_pieniadza_prognozowanie · przyszla_wartosc_pieniadza