Interest Rate Calculator Saving

Compound Interest Formula:

\[ A = P \times (1 + r/n)^{n \times t} \]

Principal Amount (P):

currency

Annual Interest Rate (r):

decimal

Compounding Periods (n):

per year

Time Period (t):

years

Future Value (A):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Compound Interest Formula?

The compound interest formula calculates the future value of an investment or loan based on the principal amount, interest rate, compounding frequency, and time period. It demonstrates how money grows over time through the power of compounding.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times (1 + r/n)^{n \times t} \]

Where:

\( A \) — Future value of the investment/loan
\( P \) — Principal investment amount
\( r \) — Annual interest rate (decimal)
\( n \) — Number of compounding periods per year
\( t \) — Time the money is invested/borrowed for (years)

Explanation: The formula shows how interest is earned on both the initial principal and the accumulated interest from previous periods.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest is crucial for financial planning, investment decisions, and loan management. It helps investors see the potential growth of their savings and borrowers understand the true cost of debt.

4. Using the Calculator

Tips: Enter principal amount in currency, annual interest rate as a decimal (e.g., 0.05 for 5%), number of compounding periods per year, and time period in years. All values must be positive.

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 due to interest being calculated more often.

Q3: What are typical compounding periods?
A: Common compounding frequencies include annually (1), semi-annually (2), quarterly (4), monthly (12), and daily (365).

Q4: Can this calculator be used for loans?
A: Yes, the same formula applies to both investments and loans, though for loans it calculates the total amount to be repaid.

Q5: How accurate is this calculation for real-world scenarios?
A: This provides a mathematical estimate. Real-world results may vary due to fees, tax implications, and changing interest rates.