Compound Interest Calculator On Savings

Compound Interest Formula:

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

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. It allows savings to grow faster as interest is earned on both the original amount and the interest already earned.

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 (final amount)
\( P \) — Principal (initial investment)
\( R \) — Annual interest rate (in decimal)
\( n \) — Compounding frequency per year
\( T \) — Time in years

Explanation: The formula calculates how much your investment will grow based on the principal amount, interest rate, compounding frequency, and time period.

3. Importance of Compound Interest

Details: Compound interest is a powerful concept in personal finance that can significantly increase savings over time. The more frequently interest is compounded, the faster your money grows, making it essential for long-term financial planning.

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 (daily vs. annually) results in higher returns because interest is calculated and added to the principal more often.

Q3: What is the Rule of 72?
A: The Rule of 72 estimates how long it takes for an investment to double: 72 divided by the annual interest rate gives the approximate number of years.

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: Is this calculator accurate for real-world savings?
A: This calculator provides theoretical results. Actual bank accounts may have different terms, fees, or minimum balance requirements.