1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It's often referred to as "interest on interest" and can significantly boost investment growth over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Maturity amount
• \( P \) — Principal investment amount
• \( R \) — Annual interest rate (in decimal)
• \( n \) — Number of times interest is compounded per year
• \( T \) — Time the money is invested for (in years)

Explanation: The formula calculates how much your investment will grow with compound interest over a specific period.

3. Importance of Compound Interest

Details: Compound interest is a powerful concept in finance that allows investments to grow exponentially over time. The more frequently interest is compounded, the faster your money grows.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, select compounding frequency, and time period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (daily vs. annually) results in higher returns because interest is calculated more often on the growing balance.

Q3: Are CD interest rates fixed or variable?
A: Most CDs have fixed interest rates for the term length, though some special CDs may offer variable rates.

Q4: What happens if I withdraw my CD early?
A: Early withdrawal typically results in penalties, which may reduce or eliminate your earned interest.

Q5: Are CD investments FDIC insured?
A: Yes, CDs offered by FDIC-insured banks are protected up to $250,000 per depositor, per institution.