# An initial deposit of \$5,000 is made into a savings account that compounds 71% interest annually. How much is in the account at the end of five years?

If an initial deposit of \$5,000 is made into a savings account that compounds 71% interest annually, then at the end of five years, the account will contain \$73,105.58

Compound interest builds up surprisingly large sums, and, with an interest rate as high as 71%, an initial investment of \$5,000 quickly becomes a substantial amount. If \$5,000 is invested in a savings account with 71% interest compounded annually, at the end of five years, the account will contain \$73,105.58. This means that the interest is \$68,105.58, more than thirteen times the original investment.

One year's interest on \$5,000 at 71% is \$3,550. This means that if the interest did not compound, the sum after five years would be only \$17,750. However, with annual compounding, the second year's interest on the first year total of \$8,550 (including the original \$5,000) is 6,070.50. This gives a second year total of \$14,620.50, already almost three times the initial investment. The third year's interest is \$10,380.56, giving a total of \$25, 001.06, five times the initial investment, at the end of the third year. The fourth year's interest is \$17,750.75, making a fourth year total of \$42,751.80 (rounded off to the nearest cent). The final year's interest is \$30,353.78, making for overall interest of \$68,105.58 over the five years, and a total deposit of \$73,105.58 including the initial \$5,000. This shows the counter-intuitive rapidity with which compound interest operates. If the sum were left in the account at the same rate of interest for a further five years, the result would be well over a million dollars (\$1,068,885.31, to be precise).

Last Updated by eNotes Editorial on