1. What is the Compound Savings Formula?

The compound savings formula calculates the future value of an investment based on its present value, interest rate, and time period. It accounts for the effect of compounding, where interest is earned on both the initial principal and accumulated interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( FV \) — Future Value (USD)
• \( PV \) — Present Value or initial investment (USD)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of years

Explanation: The formula shows how money grows over time when interest is compounded annually. The (1 + r)^n term represents the compounding effect.

3. Importance of Future Value Calculation

Details: Understanding future value helps in financial planning, retirement savings, and investment decisions. It demonstrates the power of compounding over time.

4. Using the Calculator

Tips: Enter present value in USD, interest rate as a decimal (e.g., 0.05 for 5%), and number of years. All values must be valid (PV > 0, rate ≥ 0, years ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest.

Q2: How often is interest compounded in this formula?
A: This formula assumes annual compounding. For more frequent compounding, the formula needs adjustment.

Q3: What's a typical interest rate for savings?
A: Savings accounts typically offer 0.5%-2% (0.005-0.02), while investments may yield 4%-10% annually.

Q4: How does inflation affect future value?
A: The formula doesn't account for inflation. For real returns, subtract inflation rate from the interest rate.

Q5: Can I calculate monthly contributions with this?
A: This formula is for a single lump sum. For regular contributions, you'd need the future value of annuity formula.