Compound Interest Calculator On Investments

Compound Interest Formula:

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

Principal Amount (P):

Annual Interest Rate (R):

Compounding Frequency (n):

Time Period (T):

years

Maturity Amount (A):

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 investments grow at a faster rate compared to simple interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

\( A \) — Maturity amount (currency)
\( P \) — Principal amount (initial investment)
\( R \) — Annual interest rate (decimal)
\( n \) — Compounding frequency per year
\( T \) — Time period 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 Calculation

Details: Understanding compound interest is crucial for investment planning, retirement savings, and financial decision-making. It demonstrates the power of time and consistent investing in wealth accumulation.

4. Using the Calculator

Tips: Enter the principal amount in dollars, 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: More frequent compounding (e.g., 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 simple way to estimate how long an investment will take 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 need to repay.

Q5: Is this calculator suitable for all types of investments?
A: This calculator works for fixed-rate investments. For variable-rate investments or those with additional contributions, more complex calculations are needed.