1. What is the Compound Interest Formula?

The compound interest formula calculates the future value of an investment based on the present value, interest rate, compounding frequency, and time period. It accounts for interest earned on both the initial principal and the accumulated interest from previous periods.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( FV \) — Future Value (USD)
• \( PV \) — Present Value (USD)
• \( r \) — Annual interest rate (decimal)
• \( m \) — Compounding periods per year
• \( n \) — Time in years

Explanation: The formula shows how money grows when interest is earned on both the initial amount and the accumulated interest.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning, investment decisions, and retirement savings. It demonstrates how small, regular investments can grow significantly over time.

4. Using the Calculator

Tips: Enter present value in USD, annual rate as decimal (e.g., 0.05 for 5%), compounding frequency (e.g., 12 for monthly), and time in years. All values must be positive numbers.

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 does compounding frequency affect results?
A: More frequent compounding leads to higher returns. Daily compounding yields more than annual compounding at the same rate.

Q3: What are typical compounding periods?
A: Common periods are annually (1), semi-annually (2), quarterly (4), monthly (12), or daily (365).

Q4: Can I use this for debt calculations?
A: Yes, the same formula applies to compound interest on loans and credit cards, where it works against you.

Q5: How accurate is this calculator?
A: It provides theoretical results assuming constant rate and no additional contributions/withdrawals.