1. What is Compound Interest?

Definition: Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods.

Purpose: This calculator helps investors and savers understand how their money can grow over time with compound interest.

2. How Does Compound Interest Work?

The calculator uses the formula:

Where:

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

Explanation: The principal earns interest each period, and each subsequent period's interest calculation includes previously earned interest.

3. Importance of Compound Interest

Details: Compound interest can significantly increase investment returns over time, making it a powerful tool for wealth building.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as percentage), time period in years, and compounding frequency (default is monthly/12).

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 does compounding frequency affect results?
A: More frequent compounding (e.g., daily vs. annually) results in higher returns due to interest being calculated on interest more often.

Q3: What's a typical compounding frequency?
A: Savings accounts often compound daily, CDs monthly, and loans typically monthly.

Q4: Can I use this for loans?
A: Yes, this calculates how interest compounds for both investments and loans.

Q5: How accurate is this calculator?
A: It provides mathematical results; actual bank calculations may have minor variations due to rounding or specific policies.