Saving Account Calculator Compounding Interest

Compound Interest Formula:

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

Principal Amount (P):

Annual Interest Rate (r):

Compounding Frequency (n):

Time Period (t):

years

Future Value (FV):

Interest Earned:

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 of a deposit or loan. It's often referred to as "interest on interest" and makes a sum grow at a faster rate than simple interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

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

Explanation: The formula calculates how much your investment will grow over time with compound interest, taking into account how frequently the interest is compounded.

3. Importance of Compound Interest

Details: Compound interest is a powerful concept in finance 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 the principal plus any accumulated interest.

Q2: How does compounding frequency affect returns?
A: The more frequently interest is compounded, the greater the returns. Daily compounding yields slightly more than monthly, which yields more than quarterly, and so on.

Q3: Is compound interest always beneficial?
A: While beneficial for savings and investments, compound interest works against you when you have debt, as interest accumulates on both principal and accrued interest.

Q4: What is the Rule of 72?
A: The Rule of 72 is a simple way to estimate how long an investment will take to double: divide 72 by the annual interest rate. For example, at 6% interest, your money will double in about 12 years.

Q5: Can I use this calculator for different currencies?
A: Yes, the calculator works with any currency as long as you're consistent with your principal amount input.