Compound Interest Calculator
Calculation Results
Understanding Compound Interest
Compound interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Often called "interest on interest," it can make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.
How Does Compound Interest Work?
The magic of compounding works by growing your money exponentially over time. When you earn interest, that interest is added to your principal amount. The next time interest is calculated, it's based on this new, larger principal. This cycle continues, accelerating your wealth growth. The more frequently the interest is compounded (e.g., monthly vs. annually), the greater the effect.
Formula for Compound Interest
The formula used by this calculator is:
A = P(1 + r/n)^(nt)
- A = the future value of the investment/loan, including interest.
- P = the principal investment amount (the initial deposit or loan amount).
- r = the annual interest rate (in decimal).
- n = the number of times that interest is compounded per year.
- t = the number of years the money is invested or borrowed for.