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Compound Interest Formula:
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The compound interest formula calculates the future value of savings by accounting for interest earned on both the initial principal and accumulated interest from previous periods. It's essential for understanding how savings grow over time in UK savings accounts.
The calculator uses the compound interest formula:
Where:
Explanation: The formula demonstrates how money grows through compound interest, where interest is calculated on both the initial amount and any accumulated interest.
Details: Calculating future value helps savers plan their financial goals, compare different savings accounts, and understand the long-term benefits of regular saving and compound growth.
Tips: Enter principal 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 principal and accumulated interest, leading to faster growth.
Q2: How often do UK savings accounts typically compound interest?
A: Most UK savings accounts compound interest annually, though some 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 there's a Personal Savings Allowance that allows basic rate taxpayers to earn up to £1,000 in savings interest tax-free.
Q4: Can this calculator be used for other currencies?
A: While the formula works for any currency, this calculator is specifically designed for GBP and UK savings accounts.
Q5: How accurate are these calculations compared to real savings accounts?
A: The calculator provides theoretical results based on the formula. Actual returns may vary slightly due to rounding methods and specific account terms used by different banks.