1. What is the Compound Interest Formula?

The compound interest formula calculates the future value of an investment or loan where interest is added to the principal at regular intervals, resulting in interest earning interest over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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 essential for financial planning, investment decisions, and comparing different savings or investment products.

4. Using the Calculator

Tips: Enter principal amount in currency units, annual interest rate as a percentage, compounding frequency (e.g., 12 for monthly), and time in years. All values must be positive.

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 (e.g., daily vs. annually) results in higher returns due to interest being calculated and added 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 calculating the future value of loans with compound interest.

Q5: Is compound interest always beneficial?
A: While beneficial for investments and savings, compound interest can work against you when borrowing money, as debt can grow rapidly.