1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows savings to grow at an accelerating rate compared to simple interest.

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 formula shows how your money grows when earnings are reinvested to generate their own earnings.

3. Importance of Compounding Frequency

Details: More frequent compounding leads to higher returns. Daily compounding yields slightly more than monthly, which yields more than annual compounding.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage (e.g., 3.5 for 3.5%), time in years, and select compounding frequency. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How does compound interest differ from simple interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on principal plus accumulated interest.

Q2: What's the best compounding frequency?
A: More frequent compounding (daily) yields slightly higher returns than less frequent (annually), all else being equal.

Q3: How can I maximize compound interest?
A: Start early, invest regularly, choose higher rates, and allow interest to compound without withdrawals.

Q4: Does this calculator account for additional contributions?
A: No, this calculates one-time principal only. For recurring contributions, use a future value calculator.

Q5: Are results guaranteed?
A: Results are projections assuming constant rate and compounding. Actual returns may vary with rate changes.