Compound Interest Calculator Simple Interest

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{R}{100 \times n}\right)^{n \times T} \]

Principal (P):

currency units

Annual Interest Rate (R):

Compounding Frequency (n):

per year

Time (T):

years

Compound Amount (A):

Simple Interest Amount:

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1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. It contrasts with simple interest, where interest is not added to the principal for interest calculation.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{R}{100 \times n}\right)^{n \times T} \]

Where:

\( A \) — Final 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 when interest is compounded at regular intervals.

3. Compound vs Simple Interest

Details: Compound interest earns interest on both the principal and accumulated interest, while simple interest only earns interest on the principal amount. Over time, compound interest generates significantly higher returns.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, compounding frequency (e.g., 12 for monthly, 4 for quarterly, 1 for annually), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between compound and simple interest?
A: Compound interest calculates interest on both principal and accumulated interest, while simple interest only calculates interest on the principal amount.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (e.g., monthly vs annually) results in higher returns due to interest being calculated and added more often.

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

Q4: Can this calculator handle different currencies?
A: Yes, the calculator works with any currency as long as you maintain consistent currency units for principal and amount.

Q5: Is compound interest always beneficial?
A: While beneficial for investments and savings, compound interest can work against you with loans and credit card debt where interest compounds on outstanding balances.