How to Use Compound Interest Tables

Compound interest refers to how adding interest to the account over time, rather than as a single lump-sum at the end, increases the amount of interest earned. For example, if you put your money in a certificate of deposit for three years, you'll earn more interest if the interest that accrues on the account is added to the balance periodically so that it can accrue additional interest. The more often the accrued interest gets added to the balance, the higher the effective return. Using a compound interest table lets you figure out the compound interest factor rather than having to calculate it by hand.

Step 1

Multiply the number of times interest compounds per year by the number of years the interest will accrue on the money. For example, say you invest in a CD that compounds interest quarterly for three years. Because there are four quarters per year, multiply 4 by 3 to get 12 compounding periods.

Step 2

Divide the annual interest rate by the number of times per year the interest compounds to figure the periodic interest rate. In this example, if the CD pays an annual interest rate of 4 percent, divide 4 by 4 to find the periodic interest rate equals 1 percent.

Step 3

Locate the cell in the table where the row is the number of compounding periods and the column is the periodic interest rate to find the compound interest factor. In this example, find the cell where the row corresponds to 12 compounding periods and the column corresponds to 1 percent -- 1.127.

Step 4

Multiply the compound interest factor by the amount invested to figure how much it will be worth in the future. In this example, if you put $2,400 in the CD, multiply $2,400 by 1.127 to find the CD will be worth $2,704.80 when it matures in three years.

references & resources