Compound Interest Calculator For Term Deposits

Compound Interest Formula:

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

Principal (P):

Annual Interest Rate (R):

Compounding Frequency (n):

Time (T):

years

Maturity Amount (A):

Interest Earned:

Unit Converter ▲

Unit Converter ▼

From:	To:

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 referred to 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 your investment grows when interest is compounded at regular intervals over time.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest helps investors and savers make informed decisions about their investments. It demonstrates how money can grow over time and the power of regular compounding.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, select compounding frequency, 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 returns?
A: More frequent compounding (e.g., monthly vs. annually) results in higher returns due to interest being calculated more often.

Q3: What is the rule of 72?
A: A simple way to estimate how long it takes for an investment to double: divide 72 by the annual interest rate.

Q4: Can this calculator be used for loans?
A: While the formula is similar, this calculator is designed for investments. Loan calculations may have additional factors to consider.

Q5: Are there any limitations to this calculation?
A: This assumes a fixed interest rate and consistent compounding periods. Real-world investments may have variable rates and additional factors.