What is Compound Interest?
Compound interest, also known as compounded interest, is interest that's calculated both on the initial principal of a deposit or loan, and on all previously accumulated interest.
For example, let's say $100 represents the principal of a loan, which carries a compounded interest rate of 10%. After one year you have $100 in principal and $10 in interest, for a total base of $110. In year two, the interest rate (10%) is applied to the principal ($100, resulting in $10 of interest) and the accumulated interest ($10, resulting in $1 of interest), for a total of $11 in interest gained that year. The second year's increase is $11, instead of $10, because the interest is compounding – that is, it's being applied to a larger base ($110 compared to $100, our starting point). Each year, the base increases by 10%: $110 after the first year, then $121 after the second year.
What Is The Formula for Compound Interest?
It's similar to the Compounded Annual Growth Rate (CAGR). For CAGR, you are computing a rate which links the return over a number of periods. For compound interest, you most likely know the rate already; you are just calculating what the future value of the return might be.
For the formula for compound interest, just algebraically rearrange the formula for CAGR. You need the beginning value, interest rate, and number of periods in years. The interest rate and number of periods need to be expressed in annual terms, since the length is presumed to be in years. From there you can solve for the future value. The equation reads:
Beginning Value * (1 + (interest rate/number of compounding periods per year))^(years * number of compounding periods per year) = Future Value
This formula looks more complex than it really is, because of the requirement to express it in annual terms. Keep in mind, if it's an annual rate, then the number of compounding periods per year is one, which means you're dividing the interest rate by one and multiplying the years by one. If compounding occurs quarterly, you would divide the rate by four, and multiply the years by four.
Calculating Compound Interest in Excel
Financial modeling best practices require calculations to be transparent and easily auditable. The trouble with piling all of the calculations into a single formula is that you can't easily see what numbers go where, or what numbers are user inputs or hardcoded.
There are two ways to set this up in Excel. The most easy to audit and understand is to have all the data in one table, then break out the calculations line by line. Conversely, you could calculate the whole equation in one cell to arrive at just the final value figure. We recommend the first approach, but both are detailed below.
In the example below, you can input the data in yellow, and choose the compounding period.

How do I use the rule of 72 to calculate continuous compounding?
Find out why the rule of 72 does not accurately reflect the growth caused by continuous compounding, and which number can ... Read Answer >> 
Simple versus compound interest
Different methods in interest calculation can end up different interest payment. Learn the differences between simple and ... Read Answer >> 
Compound interest versus simple interest
Simple interest is only based on the principal amount of a loan, while compound interest is based on the principal amount ... Read Answer >> 
What does it mean when interest 'accrues daily?'
Learn what it means when an interestbearing account accrues interest daily and how different compounding periods change ... Read Answer >>

Investing
Continuous compound interest
Different frequency in compound interest results in different returns. Check out how continuous compounding accelerates your return. 
Investing
Overcoming Compounding's Dark Side
Understanding how money is made and lost over time can help you improve your returns. 
IPF  Banking
APR and APY: Why Your Bank Hopes You Can't Tell The Difference
Do you know the difference between Annual Percentage Rate and Annual Percentage Yield? Check out how they can affect your own account balance. 
Investing
The Effective Annual Interest Rate
The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. 
Investing
4 Ways Simple Interest Is Used In Real Life
Simple interest works in your favor when you're a borrower, but against you when you're an investor. 
Retirement
Using Compounding to Boost Retirement Savings
Allowing growth on your investments to compound over time gives you immense returns when saving for retirement. 
Investing
How to calculate your investment return
How much are your investments actually returning? The method of calculation can make a significant difference in your true rate of return. 
IPF  Banking
The Interest Rates: APR, APY and EAR
When most people shop for financial products, all they focus on is the listed interest rate. Human eyes instinctively dismiss the fine print, which usually includes the terms APR (annual percentage ... 
Personal Finance
Schedule Loan Repayments With Excel Formulas
Learn how to calculate all the particulars of a loan using Excel, and find out how to set up a schedule of repayment for a mortgage or any other loan.

Compound
Compound is the ability of an asset to generate earnings, which ... 
Periodic Interest Rate
The periodic interest rate is the interest rate charged on a ... 
Effective Annual Interest Rate
The effective annual interest rate is an investment's annual ... 
Continuous Compounding
Continuous compounding is the process of calculating interest ... 
Compounding
Compounding is the process in which an asset's earnings, from ... 
Stated Annual Interest Rate
A stated annual interest rate is the return on an investment ...