1. What is the Compound Interest Formula?

The compound interest formula calculates the future value of an investment or savings account where interest is earned on both the initial principal and the accumulated interest from previous periods.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

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

Explanation: The formula shows how money grows over time when interest is compounded at regular intervals.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest helps in financial planning, setting savings goals, and making informed investment decisions for long-term wealth accumulation.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a decimal), compounding frequency, time in years, and your goal amount. 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 the final amount?
A: More frequent compounding (daily vs. annually) results in higher returns due to interest being calculated and added more often.

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

Q4: How do I convert percentage rate to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05).

Q5: Can this calculator be used for loans as well?
A: Yes, the same formula applies to compound interest on loans, though the context and implications are different.