Savings Calculator With Compound Interest

Compound Interest Formula:

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

Initial Principal (P):

Annual Interest Rate (r):

decimal

Compounding Periods per Year (n):

Time (t):

years

Periodic Payment (PMT):

$ per period

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. It allows savings to grow at an accelerating rate over time, making it a powerful tool for long-term wealth accumulation.

2. How Does the Calculator Work?

The calculator uses the compound interest formula with regular contributions:

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

Where:

$ FV $ — Future Value (currency)
$ P $ — Initial Principal (currency)
$ r $ — Annual Interest Rate (decimal)
$ n $ — Number of Compounding Periods per Year (unitless)
$ t $ — Time in Years (years)
$ PMT $ — Periodic Payment (currency per period)

Explanation: The formula calculates both the compound growth of the initial investment and the future value of regular contributions made at each compounding period.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning, retirement savings, and investment strategies. It demonstrates how small, regular contributions can grow significantly over time through the power of compounding.

4. Using the Calculator

Tips: Enter the initial investment amount, annual interest rate (as a decimal), number of compounding periods per year, time in years, and regular periodic payments. All values must be non-negative.

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 (higher n) results in higher returns because interest is calculated and added to the principal more often.

Q3: What is a typical compounding frequency?
A: Common frequencies include annually (n=1), semi-annually (n=2), quarterly (n=4), monthly (n=12), and daily (n=365).

Q4: Can I use this calculator for different currencies?
A: Yes, the calculator works with any currency as long as you maintain consistency (use the same currency for principal and payments).

Q5: What if the interest rate is zero?
A: The calculator handles zero interest rates by using a simplified calculation that only sums the principal and total contributions.