Compound Interest Calculator

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

Amount (A):

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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 allows your investment to grow at an accelerating rate over time.

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 over a specified period.

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 through reinvestment of earnings.

4. Using the Calculator

Tips: Enter the principal amount in currency units, annual interest rate as a percentage, compounding frequency (how many times per year interest is compounded), 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 the final amount?
A: More frequent compounding results in higher returns because interest is calculated and added to the principal 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 be used for loans as well?
A: Yes, the same formula applies to compound interest on loans, though the context is different (you pay interest rather than earn it).

Q5: What is the Rule of 72?
A: The Rule of 72 is a quick way to estimate how long it takes for an investment to double: divide 72 by the annual interest rate.