Compound Interest Calculator

Compound Interest Formula:

\[ A = P \times (1 + \frac{r}{n})^{nt} \] \[ \text{Compound Interest} = A - P \]

Principal Amount (P):

Annual Interest Rate (r):

Compounding Frequency (n):

Time Period (t):

years

Compound Interest:

Total Amount:

Unit Converter ▲

Unit Converter ▼

From:	To:

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's often described as "interest on interest" and can cause wealth to grow exponentially over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times (1 + \frac{r}{n})^{nt} \] \[ \text{Compound Interest} = A - P \]

Where:

\( A \) — Total amount after time t
\( P \) — Principal amount (initial investment)
\( r \) — Annual interest rate (as decimal)
\( n \) — Number of times interest compounds per year
\( t \) — Time in years

Explanation: The formula calculates how much your investment grows when interest is earned on both the principal and accumulated interest.

3. Importance of Compound Interest

Details: Compound interest is a powerful financial concept that allows investments to grow exponentially over time. It's the foundation of long-term wealth building and retirement planning.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, select compounding frequency, and time period 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 principal and accumulated interest.

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

Q3: What is the Rule of 72?
A: The Rule of 72 estimates how long it takes for an investment to double: 72 ÷ interest rate = years to double.

Q4: Can compound interest work against me?
A: Yes, when borrowing money, compound interest can cause debt to grow rapidly if not managed properly.

Q5: What's the best way to maximize compound interest?
A: Start early, invest regularly, choose higher compounding frequencies, and reinvest all earnings to benefit from maximum compounding.