Interest Rate Calculator

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 (T):

years

Maturity Amount (A):

Unit Converter ▲

Unit Converter ▼

From:	To:

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 your investment to grow at an accelerating rate over time, making it a powerful tool for wealth accumulation.

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
\( P \) — Principal amount (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 time.

3. Importance of Compound Interest

Details: Compound interest is fundamental to long-term investing and savings. It demonstrates how small, regular investments can grow significantly over time due to the compounding effect, often referred to as "interest on interest."

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 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 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 percentage.

Q4: Can compound interest work against me?
A: Yes, when it comes to debt. Credit cards and loans use compound interest, which can cause debt to grow rapidly if not managed properly.

Q5: Is compound interest better for long-term or short-term investments?
A: Compound interest is most powerful over long periods. The longer your money compounds, the more significant the growth becomes.