Saving Account Interest Calculator

Compound Interest Formula:

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

Principal (P):

Annual Interest Rate (r):

decimal

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 of a deposit or loan. It allows savings to grow at a faster rate compared to 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 form)
\( n \) — Number of compounding periods per year
\( t \) — Time the money is invested for (in years)

Explanation: The formula calculates how much an investment will grow over time when interest is compounded at regular intervals.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest helps investors make informed decisions about savings and investments, and demonstrates the power of long-term investing and regular contributions.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), number of compounding periods per year, and time 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 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 more often.

Q3: What are typical compounding periods?
A: Common compounding periods include annually (1), semi-annually (2), quarterly (4), monthly (12), and daily (365).

Q4: Can this calculator be used for loans?
A: Yes, the same formula applies to calculating the future value of loans with compound interest.

Q5: How accurate is this calculation for real-world investments?
A: This provides a theoretical calculation. Actual returns may vary due to fees, taxes, and fluctuating interest rates.