Numbers Compound Interest Compound interest includes the new percentage each time the increase is worked out.

Numbers If 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?

Numbers Year 1 4% = 0.04 £3,000 x 0.04 = £120 After 1 year I now have £3,120 in my account.

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

Numbers Year 3 4% = 0.04 £3, x 0.04 = £ After 3 years I now have £3, in my account.

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

Numbers £3,000 initial deposit + 4% compound interest Year 1 - £3,120 Year 2 - £3, Year 3 - £3, £3,120 £3,240 £3,360

Numbers A Bank offers interest of 2.75% each month. With £1,500 deposited, how much will there be in the account after 1 year?

Numbers We would need to have to work out the new amount each month, this would take a very long time. There is a quicker way…

Numbers The formula below lets us work this out in one complete calculation: A = P(1+r) n

Numbers A = P(1+r) n A = total amount P = initial amount r = multiplier n = number of months

Numbers A = P(1+r) n A= £1,500 ( ) 12 A= £1,500 (1.0275) 12 A = £1,500 x 1.38 A = £