Compound Interest Calculator
Calculate the future value of an investment with compound interest.
Calculate Compound Interest
Common Compound Interest Scenarios
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Understanding Compound Interest
Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It's often referred to as 'interest on interest', and it makes a deposit or loan grow faster.
Formula
Where:
• A = Future value of the investment/loan, including interest
• P = Principal investment amount (the initial deposit or loan amount)
• r = Annual interest rate (as a decimal)
• n = Number of times that interest is compounded per year
• t = Number of years the money is invested or borrowed for
Key Concepts
- Principal (P): The initial amount of money invested or borrowed.
- Interest Rate (r): The percentage of the principal charged as interest over a period, usually annually.
- Compounding Frequency (n): How often the interest is calculated and added to the principal.
- Time (t): The duration for which the money is invested or borrowed.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal amount and also on the accumulated interest of previous periods. Compound interest leads to faster growth of money.
How does compounding frequency affect returns?
The more frequently interest is compounded, the faster your investment grows. For example, daily compounding will yield slightly more than monthly compounding, which will yield more than annual compounding, assuming the same annual interest rate.