Blog Post --- Published on October 24, 2023 | Last Updated on June 12, 2024

Compound Interest: Definition, Calculation and Benefits

menabung di deposito bank jago memberikan cuan atau untung berlipat dari compound interest Compound Interest: Definition, Calculation and Benefits

Saving and investing are ways that many people choose to achieve financial goals, secure the future and have peace of mind in everyday life. There are many savings and investment instruments available. One of the popular ones is an instrument that offers compound interest because just by using compound interest you can get maximized returns.

What is Compound Interest?

Maybe you have heard the term compound interest. In short, compound interest can be defined as interest upon interest.

When saving or investing you will get interest on the money you save. Everytime you save money, you will get interest at the end of the period.

Different from simple interest, compound interest includes the principal along with the interest earned from the previous tenor in calculating the next interest. And so on. Interest will continue to accumulate if you keep saving or investing in the same product.

Example of Compound Interest Calculation

To make it easier to understand, Jagomin will provide a simulation or illustration of the calculation of compound interest which differentiates it from simple interest.

A Jagoan named Jacklyn saves Rp150,000,000 for a full year with interest offered by the bank of 5% per annum. At the end of the period, Jacklyn will earn interest of Rp7,500,000. This is not an example of calculating compound interest, but still calculating using the concept of simple interest. Because the simple interest scheme is applied, in subsequent years the interest that will be earned each year will remain the same, namely Rp7,500,000.

Jacklyn is more interested in saving with compound interest to get bigger returns. Therefore, she wants to extend her savings period to 3 years and chooses a compound interest scheme. So what is the calculation like?

1st year of saving with compound interest:

Principal (Rp150,000,000) x interest per annum (5%) = interest earned (Rp7,500,000).

Jacklyn's total savings at the end of the first year: Rp150,000,000 + Rp7,500,000 = Rp157,500,000.

2nd year of saving with compound interest:

Principal (Rp157,500,000) x interest per annum (5%) = interest earned (Rp7,875,000).

Jacklyn's total savings at the end of the second year: Rp157,500,000 + Rp7,875,000 = Rp165,375,000.

3rd year of saving with compound interest:

Principal (Rp165,375,000) x interest per annum (5%) = interest earned (Rp8,268,750).

Jacklyn's total savings at the end of the third year: Rp165,375,000 + Rp8,268,750 = Rp173,643,750.

If you add it up, the total interest earned from saving for 3 years using the compound interest scheme is Rp23,643,750. Meanwhile, if using the single interest scheme, the total interest earned is Rp22,500,000.

Benefits of Compound Interest

As can be seen from the calculation, compound interest can provide maximized returns. This is the main advantage of compound interest. So what other benefits can you enjoy?

1. More quickly achieve long-term financial goals

By saving with compound interest, you will get bigger interest. Therefore, if you are consistent and disciplined in saving with compound interest, you will automatically realize your long-term financial goals more quickly, whether it's building retirement funds, buying a house, preparing child’s education funds, and so on.

2. Fixed returns

You already know at the start of saving or investing how much interest you will get per year. This interest is usually fixed or will not change during the period. Therefore, before deciding to save money with a compound interest scheme, you can first calculate the approximate return you will get at the end of the period.

3. Lower risk

With fixed returns, the risk borne by the fund owner will be lower. Of course, this is different from stock investments, which tend to be fluctuative.

Enjoy Compound Interest with Jago Term Deposit

If you have an account at Bank Jago, you can take advantage of compound interest by saving money in the Jago Term Deposit.

When opening a Term Deposit from the Jago application, you can select the Automatic Renewal (Automatic Roll Over/ARO) option so that the principal and interest up to 5.25% per annum will automatically be reinvested for the same period, either 1, 3, 6 or 12 months.

deposito bank jago menawarkan opsi perpanjangan otomatis atau automatic roll over ARO

The greater the amount of money invested in the Deposit, the greater the interest you will get, and by choosing automatic renewal to take advantage of compound interest, the more profit you will earn.

Ready to maximize the benefits of saving in the Jago Term Deposit?

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