More Frequent Compounding

In the days before computers, it was common for banks to compound only annually, and customers who withdrew funds before the anniversary of their deposit would often forego interest for that entire year. With computers available everywhere, interest is often compounded and credited to the account on a daily basis. However, quarterly, monthly and even weekly compounding may still be found.

To calculate the future value of a present sum which is compounded more than once a year, you need to multiply the number of annual periods by the number of times the interest is compounded in a year.

n = number of years x number of compounding periods in a year

You must also divide the annual rate of interest by that same number of compounding periods in a year.

r = annual rate of interest / number of compounding periods in a year