# Calculating compound interest with Python 3

I have a growing interest in finance and analytics, so it felt like a great idea to start creating my own set of financial tools with Python. This article will explain how I created a simple but effective script for calculating compound interest with Python. I wrote this in Python 3 (as all new Python projects should be from now onwards), but the library dependencies are very lightweight, making this something that could easily be re-written from Python 2.

## Calculating Compound Interest

This small programming challenge hinges on the mathematics behind compound interest. If you don’t already have a clear understanding of how compound interest is calculated vs ‘simple’ interest, I would recommend starting here:

https://www.mathsisfun.com/money/interest.html

Essentially we need to take the following logic and create it in Python:

With

compounding,we work out the interest for the first period, add it to the total, and then calculate the interest for the next period, and so on

## The Code

```
import math
def func_invest(input1, input2):
output = input1 + input2
return output
def func_interest(input1, input2):
rate = input2 / 100
interest = input1 * rate
output = input1 + interest
return output
def func_pl_calc(input1, input2, input3):
output = (input1 - input2) - input3
return output
def func_round(input, decimals=2):
multiplier = 10 ** decimals
return math.floor(input*multiplier + 0.5) / multiplier
def func_main():
currency = "£" #change to suit
monthly_invest = 10 #change to suit
total_invested = 0
starting_portfolio = 10000 #change to suit
total_portfolio = starting_portfolio
cur_month = 1
investment_period = 120 #(months) change to suit
interest_period = 12 #(months) change to suit
interest_percent = 5 #(%) change to suit
print("-------------\nInterest rate during investment period: {}%".format(interest_percent))
print("Month investment amount: {}{}".format(currency, monthly_invest))
print("Starting balance: {:.2f}\n-------------".format(starting_portfolio))
while cur_month <= investment_period:
#investment math
total_invested = func_invest(total_invested, monthly_invest)
total_portfolio = total_portfolio + monthly_invest
#check if interest payment due on balance
if cur_month % interest_period == 0:
total_portfolio = func_interest(total_portfolio, interest_percent)
total_portfolio = func_round(total_portfolio)
#increment investment period
cur_month = cur_month + 1
print("Total amount invested at end of period: {}{:.2f}".format(currency, total_invested))
print("Interest value during investment period ({:.0f} year[s]): {}{:.2f}".format(investment_period / 12, currency, func_pl_calc(total_portfolio, total_invested, starting_portfolio)))
print("\nPortfolio Value at end of period: {}{:.2f}\n-------------".format(currency, total_portfolio))
if __name__ == '__main__':
func_main()
```

Also available on GitHub: https://github.com/Tombo1001/Py-Compound/

Some of my functions are **incredibly** basic and completely unnecessary, but I find that it helps to remove the mathematics from the main logic of the script. Feel free to consolidate these into the main function.

## The Outcome

With the code above you should get the following output, noting that interest is calculated at the end of each interest period:

Changing when interest is calculated (before or after the monthly investment), impacts the end portfolio value.

It is possible to realise our compounded interest with a graph, showing that our interest gains increase over time as our portfolio value increases:

## The Next Steps

Now that we have some basic code to calculate compound interest, here are some great next steps for this project:

- Create a Python Django web app and publish the tool for everyone on the internet to use.
- Integrate variable interest rates during the investment period.
- Create graphs of the data as seen above using the popular Matplotlib library.

Perhaps you will see all over the above in a post here sooner or later!

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