Interest Calculator Savings Bank

Compound Interest Formula:

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

Principal Amount (P):

Annual Interest Rate (R):

decimal

Compounding Frequency (n):

per year

Time Period (T):

years

Maturity Amount (A):

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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's often referred to as "interest on interest" and can significantly increase savings over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

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

Explanation: The formula calculates how much your investment will grow when interest is compounded at regular intervals.

3. Importance of Compound Interest

Details: Compound interest is a powerful concept in finance that allows savings to grow exponentially over time. The more frequently interest is compounded, the faster your money grows.

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.

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: The more frequently interest is compounded (daily, monthly, quarterly), the higher your returns will be due to the compounding effect.

Q3: What is a typical compounding frequency for savings accounts?
A: Most savings accounts compound interest daily or monthly, though this can vary by financial institution.

Q4: Can I use this calculator for other investments?
A: While designed for savings accounts, this formula can be applied to any investment with fixed compounding interest.

Q5: How accurate is this calculator?
A: This calculator provides a mathematical estimate. Actual returns may vary slightly due to rounding practices at financial institutions.