Home
Back
Compound Interest Formula:
| From: | To: |
Compound interest is the 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 grow wealth over time.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much an investment will grow when interest is compounded at regular intervals over time.
Details: Compound interest is a powerful financial concept that allows investments to grow exponentially over time. It's essential for retirement planning, long-term savings, and understanding the true cost of borrowing.
Tips: Enter the principal amount in currency, annual interest rate as a decimal (e.g., 0.05 for 5%), compounding frequency per year, and time in years. All values must be positive numbers.
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 due to interest being calculated and added more often.
Q3: What is the rule of 72?
A: A quick way to estimate how long it takes for an investment to double: divide 72 by the annual interest rate.
Q4: Can compound interest work against me?
A: Yes, when borrowing money, compound interest can significantly increase the total amount you owe over time.
Q5: How accurate is this calculator?
A: The calculator provides accurate results based on the mathematical formula, assuming constant interest rates and regular compounding periods.