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Compound Interest Formula:
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The compound interest formula calculates the future value of a lump sum investment by accounting for the effect of compounding, where interest is earned on both the initial principal and accumulated interest over time.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much your initial investment will grow over time with compound interest, factoring in how frequently interest is compounded.
Details: Calculating future value helps investors understand the potential growth of their savings, compare different investment options, and make informed financial decisions for long-term planning.
Tips: Enter your initial lump sum 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, leading to faster growth over time.
Q2: How often do savings accounts typically compound interest?
A: In the UK, savings accounts commonly compound interest annually, but some accounts may compound monthly, quarterly, or daily.
Q3: Are there tax implications for savings interest in the UK?
A: Yes, interest earned on savings may be subject to tax, though most UK residents have a Personal Savings Allowance. Always consult a tax professional for specific advice.
Q4: What are the best savings accounts for lump sum investments in 2024?
A: Rates change frequently. Check comparison websites and financial institutions for current best rates on fixed-term bonds, easy-access accounts, and regular savers.
Q5: Can I withdraw money from a fixed-term savings account?
A: Typically, fixed-term accounts restrict withdrawals until the term ends, often with penalties for early access. Check specific account terms before investing.