Compound Interest Calculator

Compound Interest Formula:

\[ FV = P \times (1 + r / n)^{n \times t} \]

Principal Amount (P):

Interest Rate (r):

Compounding Periods Per Year (n):

Time (t):

years

Future Value (FV):

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 referred to as "interest on interest" and can significantly boost investment growth over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ FV = P \times (1 + r / n)^{n \times t} \]

Where:

\( FV \) — Future value of the investment
\( P \) — Principal investment amount
\( r \) — Annual interest rate (in decimal form)
\( n \) — Number of compounding periods per year
\( t \) — Time the money is invested for in years

Explanation: The formula calculates how much your investment will grow based on the principal amount, interest rate, compounding frequency, and time period.

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, number of compounding periods per year, and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does compounding frequency affect returns?
A: More frequent compounding (monthly vs. annually) results in higher returns because interest is calculated and added to the principal more often.

Q2: 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.

Q3: How can I maximize compound interest?
A: Start early, invest regularly, choose accounts with higher interest rates, and allow your investments to grow without withdrawals.

Q4: Are there any limitations to this calculation?
A: This calculation assumes a fixed interest rate and doesn't account for taxes, fees, or additional contributions/withdrawals.

Q5: Where can I find current high-yield savings account rates?
A: Many financial websites and banks publish current rates. Online banks typically offer higher rates than traditional brick-and-mortar institutions.