Compound interest formula:
A = P (1+r/n)^(nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for
Compounding Interest simply means that the interest earned for a certain interest period also earns an interest.
Let us assume the following:
Principal = 1,000
rate = 0.12 per annum
term/time = 5 years
if n = annual compounding it is equal to 1 ; A = 1,762.34
if n = semi annual compounding it is equal to 2 ; A = 1,790.85
if n = quarterly compounding, it is equal to 4 ; A = 1,806.11
if n = monthly compounding, it is equal to 12 ; A = 1,816.70
Based on the sample computation, Anthony will earn more interest from monthly compounding.