NumbersCompound InterestCompound interest

includes the new percentage each time the

increase is worked out.

NumbersIf I have £3,000 in a bank account and I receive 4% interest each year, how much does this increase

after 1 year, 2 years and 3 years?

NumbersYear 1

4% = 0.04£3,000 x 0.04 = £120

After 1 year I now have £3,120 in my account.

NumbersYear 2

4% = 0.04£3,120 x 0.04 = £124.80After 2 years I now have £3,244.80 in my account.

NumbersYear 3

4% = 0.04£3,244.80 x 0.04 = £129.79

After 3 years I now have £3,374.59 in my account.

Numbers£3,000 initial deposit + 4% (£120) each yearYear 1 - £3,120Year 2 - £3,240Year 3 - £3,360

Numbers£3,000 initial deposit + 4% compound interestYear 1 - £3,120Year 2 - £3,244.80Year 3 - £3,374.59

£3,120£3,240£3,360

NumbersA Bank offers interest of

2.75% each month.With £1,500 deposited,

how much will there be in the account after 1 year?

NumbersWe would need to have to work out the new amount

each month, this would take a very long time.

There is a quicker way…

NumbersThe formula below lets us

work this out in one complete calculation:

A = P(1+r)n

NumbersA = P(1+r)n

A = total amountP = initial amount

r = multipliern = number of months

NumbersA = P(1+r)n

A= £1,500 (1 + 0.0275)12

A= £1,500 (1.0275) 12

A = £1,500 x 1.38A = £2077.17