1. What is a Compound Interest Calculator?

Definition: This calculator computes the future value of an investment based on compound interest formula.

Purpose: It helps investors understand how their money can grow over time with compound interest.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( A \) — Final amount ($)
• \( P \) — Principal investment ($)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested (years)

Explanation: The formula accounts for periodic compounding where interest is added to the principal, earning more interest.

3. Importance of Compound Interest

Details: Compound interest is powerful because it allows investments to grow exponentially over time, as you earn "interest on interest."

4. Using the Calculator

Tips: Enter the principal amount, annual rate (as decimal), compounding frequency (12 for monthly), and investment period in years.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert percentage rate to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05).

Q2: 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.

Q3: How does compounding frequency affect results?
A: More frequent compounding (daily vs. annually) yields higher returns due to more frequent interest application.

Q4: What are typical compounding periods?
A: Common options are annually (1), semi-annually (2), quarterly (4), monthly (12), or daily (365).

Q5: Can I use this for loans or debts?
A: Yes, the same formula applies to compound interest on debts, though results represent what you'll owe.