Home
Back
Compound Interest Formula:
| From: | To: |
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 original amount and the interest that has been added to it.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much your savings will grow over time with compound interest, taking into account how frequently the interest is compounded.
Details: Understanding compound interest helps savers make informed decisions about their savings strategy, compare different savings accounts, and plan for long-term financial goals.
Tips: Enter principal amount in GBP, annual interest rate as a decimal (e.g., 0.05 for 5%), select compounding frequency, and time period 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 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 because interest is calculated and added more often.
Q3: Are there tax implications for savings interest in the UK?
A: Yes, interest earned on savings may be subject to tax, though there are allowances. Consult a financial advisor for specific advice.
Q4: What's a typical interest rate for UK savings accounts?
A: Rates vary widely depending on the account type and economic conditions. Always check current rates with financial institutions.
Q5: Can I use this calculator for other currencies?
A: While the formula works for any currency, this calculator is specifically designed for GBP. The principles are the same for other currencies.