Calculating compound interest with Python 3

Calculating compound interest with Python - exitcode 0
Compound stonks only go up!

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:

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__':

Also available on GitHub:

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:

Starting with the current variables defined in the GitHub repository

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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