Home
Back
Compound Interest Formula:
| From: | To: |
The compound interest formula calculates the future value of an investment or savings account by accounting for both the initial principal and the accumulated interest over time. It demonstrates how money can grow exponentially through compounding.
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: Understanding future value helps in financial planning, investment decisions, and setting realistic savings goals. It shows the power of compounding and the importance of starting early.
Tips: Enter principal amount in GBP, 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.
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 (daily vs. annually) results in higher returns due to interest being calculated and added more often.
Q3: What is a typical interest rate for savings accounts?
A: Rates vary but typically range from 0.5% to 5% annually, depending on the account type and economic conditions.
Q4: Can this calculator be used for investments other than savings accounts?
A: Yes, the compound interest formula applies to any investment where interest is compounded, including bonds and certain types of loans.
Q5: How accurate is this calculation for real-world scenarios?
A: This provides a mathematical estimate. Actual returns may vary due to changing interest rates, fees, taxes, and other factors.