Compound Interest Calculator

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. This "interest on interest" effect allows your savings to grow exponentially over time.

The Power of Compounding

Unlike simple interest, which is only calculated on the principal amount, compound interest accelerates wealth creation. The more frequently interest is compounded (e.g., daily vs. annually), the faster your balance will grow.

The Compound Interest Formula

The standard formula for calculating compound interest over a specified period is:

$A = P \left( 1 + \frac{r}{n} \right)^{nt}$

Where:

• $A$ = The final amount (future value) including interest.
• $P$ = The principal investment amount (initial deposit).
• $r$ = The annual interest rate (decimal).
• $n$ = The number of times interest is compounded per unit $t$.
• $t$ = The time the money is invested or borrowed for.

How to Calculate Total Interest

To find the total interest earned, simply subtract the principal from the final amount:

$I = A - P$

Frequently Asked Questions

What is the difference between simple and compound interest?

Simple interest is calculated only on the principal amount of a loan or deposit. Compound interest is calculated on the principal plus any interest that has already been added.

How often should interest be compounded?

The more frequent the compounding, the higher the final return. Monthly compounding results in more interest than annual compounding, and daily compounding is even better for the saver.

How does the time factor affect compound interest?

Time is the most critical component in the compound interest formula. Due to exponential growth, the longer you leave your money invested, the more significantly the "interest on interest" effect multiplies your balance.