Compound interest is the interest which is earned both on the original investment (the principal amount) and the total interest accumulated so far. Here are a few methods to calculate compound interest.

**Method 1**

This method is suitable for interests which are compounding annually or whose duration is just a few years. Suppose the annual compound interest rate is 7% (0.07) on a $1000 investment for 3 years. Then

Interest for first year: $1000 x 0.07 = $70, Total amount: $1070

Interest for second year: $1070 x 0.07 = $74.9, Total amount: $1144.9

Interest for third year: $1144.9 x 0.07 = $80.14, Total amount: $1225.04

So the total amount of interest will be: $70 + $74.9 + $80.14 = $225.04

**Method 2**

Suppose an interest is compounding more frequently like quarterly, monthly or weekly or spread over a duration of many years, it is more convenient to use the compound interest calculation formula:

**FV = P (1 + i/c) ^{n*c}**

where

FV = Future value of the principal

P: Principal amount

i: Interest rate

c: Compounding frequency per year

n: Number of years

Suppose the interest rate is 5% (0.05) compounding quarterly on a $1000 debt taken for 5 years, then

P=$1000, i=0.05, c=4, n=5

FV = P (1 + i/c)^{n*c} = $1000 x (1 + 0.05/4)^{5*4} = $1000 x (1.0125)^{20} = $1000 x 1.282 = $1282

The future value will be** $1282 after 5 years**.

The compound interest will be $1282 - $1000 = **$282**