Compound interest formula
The formula is: final amount = principal x (1 + rate / compounding periods) to the power of total periods. For 18,750 lei, annual yield 5.35% and monthly compounding over 36 months, the final amount is about 22,009 lei before tax.
Simple interest pays on the original amount only. Compound interest also pays on the interest already earned. The gap is small in the first months, but visible after 3-5 years.
Bank deposits and compounding
In Romania, many deposits pay interest at maturity without automatic compounding. If you choose 3-month deposits and reinvest the interest, you create a compounding effect.
Bogdan Baicu, former BRD credit officer: "In saving, discipline beats the spectacular offer. A client reinvesting 420 lei every month for 7 years often gets further than one chasing 0.2 points more but withdrawing every gain."
Where to use the calculator
Use the calculator for lei deposits, emergency funds, bonds held to maturity or monthly investment contributions. For current offers, start with bank deposits.
Do not mix gross interest with net interest after tax. Do not assume the bank reinvests automatically. Do not compare 3 months with 12 months without annualising. A concrete 5.27% is better than a neat 5% assumption.