--- title: Compound Interest Formula, Definition, Example, & Calculation description: Compound interest is “interest-on-interest”, or the ability of a financial instrument to generate earnings on its earnings. See the compound interest formula and calculation here. image: https://www.realized1031.com/hubfs/social-suggested-images/Realized_Glossary_Graphic-2.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Compound Interest Compound interest is “interest-on-interest”, or the ability of a financial instrument to generate earnings from its earnings. Compound interest can be calculated using the formula FV = P*(1+R/N)^(N*T), where FV is the [future value](https://www.realized1031.com/glossary/future-value-fv) of the loan or investment, P is the initial principal amount, R is the annual interest rate, N represents the number of times interest is compounded per year, and T represents time in years. For example, a $100 investment today with a 5.0% interest rate compounding annually for three years equals $115.76 ($100*(1+.05/1)^(1*3). Note that compound interest produces a higher result than simple interest. Using the same example, a simple interest calculation would only result in a value of $115.00 ($100*(1+.05*3). This effect is also known as compounding, and the more frequent the compounding rate, the greater the end result. 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("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. 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