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This projection is indicative. Past performance is no guarantee of future results.
What is compound interest?
Compound interest refers to a capitalization mechanism in which the interest generated by a capital sum is added to the initial capital, itself generating new interest over time. In other words, you earn interest on interest.
Compound interest plays a key role in the growth of invested capital in Swiss pension plans, particularly in the 2nd and 3rd pillar. The longer your savings remain invested, the greater the cumulative yields can make a significant difference in retirement.
How does the compound interest calculator work?
- Initial capital: the amount invested at the outset.
- Payment frequency: none, monthly, quarterly, semi-annually or annually.
- Payment amount: the amount added to each period (if applicable).
- Timing of payments: choose whether payments are made at the beginning or end of each period.
- Length of investment (in years).
- Annual interest rate (%).
At each period (month, quarter, etc.), the simulator applies interest to the existing capital, adds the payment if you have scheduled one, and repeats the operation over the entire defined term.
Interest is compounded, meaning it is added to the capital to generate new interest itself.
The compound interest formula
Without additional payments
When you invest capital over a given period with a regular interest rate, the formula used is:
A = P x (1 + r/n)n x t
- A: final amount (total accumulated capital)
- P: initial capital (the amount invested at the outset)
- r: annual interest rate (e.g.: 5 % = 0.05)
- n: number of periods per year (e.g. 12 for a monthly payment)
- t: duration of investment in years
For regular payments
A = P × (1 + r/n)n x t + PMT × [ ((1+ r/n) n x t - 1)/ (r/n) ]
- PMT: amount of periodic payments
- The first term corresponds to growth in initial capital.
- The second term represents the capitalization of payments over time.
- The calculator also takes into account whether payments are made at the beginning or end of each period, which slightly modifies the capitalization of interest.
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