Calculate Compound Interest On Savings

Compound Interest Formula:

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

Principal Amount (P):

USD

Annual Interest Rate (r):

Compounds Per Year (n):

Time (t):

years

Future Value (A):

Total Interest Earned:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Compound Interest?

Compound interest is the addition of interest to the principal sum of a loan or deposit, where the interest that has been added also earns interest. This differs from simple interest, where only the principal earns interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

\( A \) — Future value of the investment/loan
\( P \) — Principal investment amount
\( r \) — Annual interest rate (decimal)
\( n \) — Number of times interest is compounded per year
\( t \) — Time the money is invested/borrowed for, in years

Explanation: The formula calculates how much your investment grows when earnings are reinvested to generate their own earnings.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for long-term financial planning. It demonstrates how investments grow exponentially over time, highlighting the value of starting to save early.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as percentage), number of compounding periods per year, and investment duration 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 often should interest compound for maximum growth?
A: More frequent compounding (daily vs. annually) results in slightly higher returns, though the difference becomes less significant at higher frequencies.

Q3: What's a typical compounding frequency?
A: Savings accounts often compound daily, CDs monthly, and bonds semi-annually. Check your specific financial product's terms.

Q4: Does this calculator account for additional contributions?
A: No, this calculates compound interest on a single principal amount. For regular contributions, you'd need a future value of series calculator.

Q5: How does inflation affect these calculations?
A: The calculator shows nominal returns. For real (inflation-adjusted) returns, subtract the inflation rate from the interest rate.