Calculate Compound Interest iPhone Calculator

Compound Interest Formula:

\[ A = P \times (1 + \frac{R}{n})^{(n \times T)} \]

Principal (P):

Annual Interest Rate (R):

decimal

Compounding Frequency (n):

per year

Time (T):

years

Maturity Amount (A):

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1. What Is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. It's often described as "interest on interest" and makes a sum grow at a faster rate than simple interest.

2. How Does The Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times (1 + \frac{R}{n})^{(n \times T)} \]

Where:

$ A $ — Maturity amount ($)
$ P $ — Principal amount ($)
$ R $ — Annual interest rate (decimal)
$ n $ — Compounding frequency per year
$ T $ — Time in years

Explanation: The formula calculates how much an investment will grow over time when interest is compounded at regular intervals.

3. Importance Of Compound Interest

Details: Understanding compound interest is crucial for financial planning, investment decisions, and retirement savings. It demonstrates how money can grow exponentially over time, making it a powerful concept in personal finance.

4. Using The Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), compounding frequency (how many times per year interest is compounded), and time in years. 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 results?
A: More frequent compounding (daily vs. annually) results in higher returns because interest is calculated and added to the principal more often.

Q3: What are typical compounding frequencies?
A: Common frequencies include annually (1), semi-annually (2), quarterly (4), monthly (12), and daily (365).

Q4: Can this calculator handle fractional years?
A: Yes, you can enter decimal values for time (e.g., 2.5 years for 2 years and 6 months).

Q5: Is this calculator suitable for loans as well?
A: Yes, the same formula applies to compound interest on both investments and loans, though for loans it shows how much you'll owe rather than earn.