About

At a 20% interest rate, the method of compounding stops being a trivial detail and becomes a significant driver of returns. Most standard bank CDs compound monthly or daily. However, in theoretical finance and certain algorithmic trading environments, Continuous Compounding is the gold standard.

This tool is specialized for the aggressive 20% bracket. It allows you to toggle between Standard Daily Compounding and the mathematical limit of Continuous Compounding ($e^{rt}$), visualizing exactly how much extra yield is squeezed out by the laws of calculus over time.

Formulas

We compare two distinct mathematical models for the 20% rate:

1. Daily Compounding:

A = P(1 + r365)^365t

2. Continuous Compounding:

A = P e^rt

Where e is Euler's number (approx 2.71828). At 20%, r = 0.20.

Reference Data

Principal ($10k) @ 20%	Daily Compounding	Continuous Compounding	Difference
1 Year	$12,213.36	$12,214.03	$0.67
5 Years	$27,179.09	$27,182.82	$3.73
10 Years	$73,870.32	$73,890.56	$20.24
20 Years	$545,683.94	$545,981.50	$297.56
30 Years	$4,031,108.97	$4,034,287.93	$3,178.96

Frequently Asked Questions

Daily compounding calculates interest 365 times a year. Continuous compounding calculates it infinite times per year (every possible instant). While the difference is small in the short term, it represents the theoretical maximum limit of growth for a given rate.

20% is considered a 'venture' or 'distressed' rate in traditional markets. However, it is a common benchmark in DeFi (Decentralized Finance) staking protocols or high-risk private debt.

Even at 20%, the jump from 365 divisions (daily) to infinite divisions (continuous) encounters diminishing returns. The curve flattens out, meaning you get most of the benefit just by switching from annual to daily.