Compound Interest
Calculate compound interest.
Formula
A = P(1 + r/n)nt
Total Interest = A - P
Where:
- A = Total Amount (Principal + Interest)
- P = Principal Amount
- r = Annual Interest Rate (in decimal form, e.g., 5% = 0.05)
- n = Number of times interest is compounded per year
- t = Time (in years)
Compound interest is a powerful financial concept often described as "interest on interest." It is calculated on the initial principal amount and also on the accumulated interest from previous periods. This causes an investment to grow at an exponential rate, making it a crucial principle for long-term wealth building. This calculator helps you visualize this effect and project the future value of an investment or loan. To perform a calculation, you need to enter four key details. First is the 'Principal Amount', which is the initial sum of money. Second is the 'Annual Interest Rate' (as a percentage). Third is the 'Time' in years over which the investment will grow. Finally, and crucially for compound interest, you need to select the 'Compounding Frequency'. This determines how often the interest is calculated and added to the principal. The options typically include Annually (once a year), Semi-Annually (twice a year), Quarterly (four times a year), Monthly, or even Daily. More frequent compounding leads to slightly higher returns. After clicking 'Calculate', the tool will display two key results: the 'Total Interest' earned over the period and the 'Total Amount', which is the final value of your investment (principal + total interest). This calculator is invaluable for comparing different savings accounts or investment opportunities.