1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows investments to grow exponentially over time, making it a powerful concept in finance and investment planning.

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, retirement savings, investment decisions, and loan calculations. It helps investors see the long-term growth potential of their investments.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, compounding frequency, and time period. All values must be positive numbers to get accurate results.

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 is a typical compounding frequency?
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: What's 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.