Interest Calculator Savings Term Deposit

Compound Interest Formula:

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

Principal (P):

Annual Interest Rate (R):

Compounding Frequency (n):

Time (T):

years

Maturity Amount (A):

Total Interest Earned:

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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 allows savings to grow at an accelerating rate over time, making it a powerful tool for long-term financial planning.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

\( A \) — Maturity amount (final amount)
\( P \) — Principal (initial investment)
\( R \) — Annual interest rate (in decimal form)
\( n \) — Compounding frequency per year
\( T \) — Time in years

Explanation: The more frequently interest is compounded, the greater the final amount will be, as interest is earned on interest more frequently.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for retirement planning, education savings, and any long-term financial goal. It demonstrates how small, regular investments can grow significantly over time.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), select compounding frequency, and time 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 to the principal 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 there any limitations to this calculation?
A: This assumes a fixed interest rate and regular compounding. Real-world scenarios may have variable rates or different compounding methods.

Q5: How can I maximize compound interest benefits?
A: Start investing early, contribute regularly, and choose investments with higher compounding frequencies when possible.