Many people find Compound Interest a little scary! But there is no need! When you realise that to calculate Compound Interest all you have to do is plug some numbers into a formula, it really is very straightforward. The numbers required are a) the initial sum of money; b) the interest rate to be applied to the sum of money, for example, 0.05 for 5% and c) the number of years that that rate of interest is to be applied.

Below you will find a step-by-step introduction to calculating Compound Interest. Let's first of all just take a look at the formula:-

N = N_{0 } x (multiplier)^{n}

N is the sum of money after n years at the given interest rate.

N_{0} is the initial sum of money before any interest has been applied.

The multiplier is the interest rate with a 1 at the start. For example, for an interest rate of 3% the multiplier is 1.03.