Compound Interest Calculator

Compound Interest Formula:

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

Principal Amount (P):

Annual Interest Rate (R):

decimal

Compounding Frequency (n):

Time Period (T):

years

Final Amount (A):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows investments to grow at an accelerating rate over time, making it a powerful tool for wealth accumulation.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

\( A \) — Final amount including interest
\( P \) — Principal investment amount
\( R \) — Annual interest rate (in decimal form)
\( n \) — Number of times interest is compounded per year
\( T \) — Time the money is invested for (in years)

Explanation: The formula calculates how much an investment will grow when interest is earned on both the initial principal and accumulated interest.

3. Importance of Compound Interest

Details: Compound interest is fundamental to long-term investing and retirement planning. It demonstrates how small, regular investments can grow significantly over time due to the compounding effect.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), compounding frequency (how many times per year interest is added), 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 (daily vs. annually) results in higher returns because interest is calculated and added 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 percentage.

Q4: Can compound interest work against me?
A: Yes, compound interest also applies to debts and loans, causing them to grow faster if not paid down regularly.

Q5: Is compound interest taxable?
A: Yes, interest earnings are generally taxable in the year they are credited to your account, even if not withdrawn.