Many investments give the annual interest rate, but these can be misleading because of interest compounding. For example, if you have a certificate of deposit that pays interest semi-annually, that means the money that gets put in your account after six months will start earning extra interest. Since it's an investment, that's better for you that if it compounded only once per year because the more often it compounds, the higher your effective rate of return.
Divide the interest rate by 2 to calculate the semi-annual interest rate. For example, if you have a savings account that pays 3 percent per year, divide 3 by 2 to get a semi-annual interest rate of 1.5 percent.
Divide the semi-annual interest rate by 100 to convert it to a decimal. In this example, divide 1.5 by 100 to get 0.015.
Add 1 to the semi-annual interest rate expressed as a decimal. Continuing the example, add 1 to 0.015 to get 1.015.
Raise the result to the power of the number of six-month periods you'll let the interest accrue. For example, if you're going to leave the money in for 30 months, raise 1.015 to the fifth power to get 1.0773.
Multiply the result by your initial investment to calculate the value of your investment after the time period specified. In this example, if you originally invested $4,000, multiply $4,000 by 1.0073 to find your investment has grown to $4,310.28.
Subtract your initial investment from the final value to find the interest earned on the investment. Finishing the example, subtract $4,000 from $4,310.28 to find you earned $310.28 in interest.
Items you will need
- Scientific calculator
- John Foxx/Stockbyte/Getty Images