1. What is the Compound Interest Formula?

The compound interest formula calculates how savings grow over time when interest is earned on both the initial principal and the accumulated interest. This is essential for planning house-related savings and payments.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future amount of savings
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of times interest is compounded per year
• \( t \) — Time the money is invested for (years)

Explanation: The formula shows how money grows exponentially when interest is compounded, making it powerful for long-term savings goals like house payments.

3. Importance of Savings Calculation

Details: Accurate savings projections help determine how much to save regularly to reach house payment goals and understand the impact of different interest rates and compounding frequencies.

4. Using the Calculator

Tips: Enter principal in dollars, annual interest rate as decimal (5% = 0.05), compounding frequency (typically 12 for monthly), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest.

Q2: How often is interest typically compounded for savings?
A: Most savings accounts compound interest daily or monthly (n=365 or n=12).

Q3: How can I maximize my house savings?
A: Increase principal, find higher interest rates, choose accounts with more frequent compounding, and extend your savings period.

Q4: Should I use nominal or effective interest rate?
A: This calculator uses nominal rate - the stated annual rate before compounding.

Q5: How accurate are these projections?
A: They assume constant rate and regular contributions. Actual results may vary with rate changes and additional deposits/withdrawals.