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 principal and the accumulated interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Maturity amount ($)
• \( P \) — Principal amount ($)
• \( R \) — Annual interest rate (decimal)
• \( n \) — Compounding frequency per year
• \( T \) — Time period (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 financial planning, investment decisions, and retirement savings. It demonstrates how money can grow over time through the power of compounding.

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 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: Are CD interest rates fixed or variable?
A: Most CDs have fixed interest rates for the entire term, though some special CDs may offer variable rates.

Q5: What happens if I withdraw CD funds early?
A: Early withdrawal typically results in penalties, which may include loss of some interest earned.