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 interest is not compounded.

2. How the Calculator Works

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of investment
• \( P \) — 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 more frequently interest is compounded, the greater the return due to interest being calculated on an increasingly larger principal.

3. Importance for Business Savings

Details: Understanding compound interest helps businesses maximize returns on cash reserves, compare savings products, and plan for future capital needs.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as percentage, time period in years, and select compounding frequency. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between annual and daily compounding?
A: Daily compounding results in slightly higher returns as interest is calculated and added to the principal more frequently.

Q2: How does compounding frequency affect returns?
A: More frequent compounding leads to higher effective annual yields, though the difference diminishes with higher frequencies.

Q3: Is this calculator suitable for loans?
A: Yes, the same formula applies to loans, though business savings was our focus here.

Q4: What's the Rule of 72?
A: A quick way to estimate doubling time: 72 divided by the interest rate gives approximate years to double your money.

Q5: Are taxes considered in this calculation?
A: No, this shows gross returns. Actual after-tax returns will depend on your tax situation.