Calculate Savings Interest Earned

Compound Interest Formula:

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

Principal Amount (P):

Annual Interest Rate (R):

Compounding Frequency (n):

Time Period (T):

years

Maturity Amount (A):

Interest Earned (I):

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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 cause wealth to grow exponentially over time.

2. How Does The Calculator Work?

The calculator uses the compound interest formula:

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

Where:

\( P \) — Principal amount (initial investment)
\( R \) — Annual interest rate (in decimal form)
\( n \) — Number of times interest is compounded per year
\( T \) — Time the money is invested for (in years)
\( A \) — Maturity amount (future value of the investment)
\( I \) — Interest earned

Explanation: The more frequently interest is compounded, the greater the return on investment due to the compounding effect.

3. Importance Of Compound Interest

Details: Compound interest is a powerful financial concept that allows investments to grow exponentially over time. It's fundamental to retirement planning, long-term savings, and wealth accumulation strategies.

4. Using The Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), select compounding frequency, and time period 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 returns?
A: The more frequently interest is compounded, the higher the effective annual yield. Daily compounding provides the highest returns.

Q3: What is the Rule of 72?
A: It's a simple way to estimate how long an investment will take to double: Divide 72 by the annual interest rate. For example, at 6% interest, it takes about 12 years to double your money.

Q4: Can compound interest work against me?
A: Yes, when borrowing money, compound interest can cause debt to grow rapidly if not managed properly.

Q5: Are there investments with guaranteed compound interest?
A: Certificates of deposit (CDs) and savings accounts typically offer compound interest, though rates may vary over time.