# Compound interest calculator

In Discussion Paper No 127, "Discussion Paper on Interest on Debt and Damages", the Scottish Law Commission proposes that a right to claim interest on debts and claims for damages should be enshrined in legislation. It is also proposed (para 8.38) that legislation specifying a rate of interest should allow for that interest to be compounded at specified intervals, according to a prescribed formula.

The calculator below is an example of a program which, given the appropriate variables, calculates compound interest on any sum, between any two dates since 1975. It can also calculate simple interest over the same period by changing the calculation method.

By default the calculator operates on the basis of daily compounding, but can also be set to compound on a monthly or annual basis too. Compounding is performed using the formula and rate suggested in the Discussion Paper. The formula is: Total Sum = P x (1 +i)n where P = the principal sum, i = the interest rate, and n = the number of time periods. The default rate applied is the Bank of England base rate plus 1% as it varies from time to time. This can be altered in the Calculation Options. The calculator is updated to reflect any changes made to the Bank of England base rate, and is correct as of the last change to 0.5% on 5 March 2009.

The calculator is easy to use. Put the principal sum, that is, the awarded sum or the principal debt, into the first box. Enter your start date and the end date for calculation and click on "Compute" (please note you do not need to enter "0" before months or days of less than two digits. For example, August should be entered as "8" not "08"). The final sum will be calculated automatically and will appear in the "Final Amount" box.

Please note that the results obtained from this calculator are for the purposes of illustration only.