1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. It's often referred to as "interest on interest" and makes a sum grow at a faster rate than simple interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future amount (currency units)
• \( P \) — Principal amount (currency units)
• \( R \) — Annual interest rate (%)
• \( n \) — Compounding frequency per year
• \( T \) — Time in years

Explanation: The formula calculates how much an investment will grow over time when interest is compounded at regular intervals.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest is crucial for financial planning, investment decisions, and retirement savings. It demonstrates how money can grow exponentially over time.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, compounding frequency, and time period. 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 result?
A: More frequent compounding (e.g., monthly vs. annually) results in higher returns due to interest being calculated more often.

Q3: What are typical compounding frequencies?
A: Common 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 shows how much you'll owe.

Q5: 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.