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Compound Interest Formula:
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The compound interest formula calculates the future value of an investment or savings account where interest is earned on both the initial principal and the accumulated interest from previous periods. It's particularly relevant for Australian savings accounts with compounding interest.
The calculator uses the compound interest formula:
Where:
Explanation: The formula accounts for how frequently interest is compounded, which significantly impacts the final amount earned.
Details: Understanding compound interest helps Australians make informed decisions about savings and investments, showing how money can grow over time through the power of compounding.
Tips: Enter principal in AUD, annual interest rate as a decimal (e.g., 0.05 for 5%), select compounding frequency, and time in years. All values must be positive.
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 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: Are Australian savings accounts typically compounded?
A: Most Australian savings accounts compound interest, typically daily or monthly, but terms vary by financial institution.
Q4: How accurate is this calculator for real savings accounts?
A: This provides a theoretical calculation. Actual returns may vary due to changing interest rates, fees, and specific account terms.
Q5: Can I use this for other investments besides savings accounts?
A: While designed for savings accounts, the formula applies to any investment with compound interest, though other factors may need consideration.