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When compounding of interest takes place, the effective annual rate becomes higher than the overall interest rate. Thus, the more times the interest is compounded within the year, the higher the effective annual rate will be. The amount will continue to increase each year after that, with interest being calculated on the principal amount plus the returns from the previous year. Calculating these amounts manually can be challenging, so using a compound interest calculator is so helpful. There are many investment options which provide compounding interest.<\/p>\n<\/p>\n