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Compound Interest Formula:
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The compound interest formula calculates the future value of an investment or savings account where interest is compounded periodically. It's essential for understanding how savings grow over time with different compounding frequencies.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much your initial investment will grow based on the interest rate, compounding frequency, and time period.
Details: Compound interest is a powerful financial concept that allows savings to grow exponentially over time. Understanding compound interest helps in making informed decisions about savings and investments.
Tips: Enter the principal amount in GBP, annual interest rate as a percentage, number of compounding periods per year, and time in years. All values must be positive numbers.
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., monthly vs. annually) results in higher returns due to interest being calculated on interest 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 different currencies?
A: While the calculator displays results in GBP, the mathematical formula works for any currency as long as consistent units are used.
Q5: How accurate is this calculation for real bank savings?
A: This provides a theoretical calculation. Actual bank returns may vary slightly due to specific bank policies, fees, and rounding methods.