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 wealth accumulation.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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 formula calculates how much your investment will grow when interest is compounded at regular intervals over a specified period.

3. Importance of Compound Interest

Details: Compound interest is fundamental to long-term financial planning. It demonstrates how regular savings can grow significantly over time, especially when starting early and allowing interest to compound frequently.

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 for accurate calculations.

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 (e.g., monthly 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: The rule of 72 estimates how long it takes for an investment to double: 72 divided by the annual interest rate gives the approximate number of years.

Q4: Are there different types of compounding?
A: Yes, common compounding frequencies include annual, semi-annual, quarterly, monthly, and daily compounding.

Q5: How can I maximize compound interest?
A: Start early, invest regularly, choose accounts with higher interest rates, and opt for more frequent compounding to maximize growth.