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 can significantly grow wealth over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of the investment/loan
• \( P \) — Principal investment amount (initial deposit/loan amount)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of times interest is compounded per year
• \( t \) — Time the money is invested/borrowed for, in years

Explanation: The formula calculates how much an investment will grow over time with compound interest, taking into account the compounding frequency.

3. Importance of Compound Interest

Details: Compound interest is a powerful wealth-building tool that allows investments to grow exponentially over time. It's essential for retirement planning, long-term savings goals, and understanding the true cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in ₹, 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., monthly vs. annually) results in higher returns due to interest being calculated and added more often.

Q3: What is the Rule of 72?
A: The Rule of 72 is a simple way to estimate how long an investment will take 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 significantly increase the total amount you owe over time.

Q5: Is this calculator accurate for real-world investments?
A: While the formula is mathematically correct, real-world investments may have fees, taxes, and fluctuating rates that affect actual returns.