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The Compound Interest Calculator is a powerful tool to understand how your investments can grow over time. Unlike simple interest, compound interest is calculated on the initial principal and also on the accumulated interest from previous periods, often described as "interest on interest."

📈 How It Works

To calculate compound interest, you need to provide:

• Principal Amount (P): The initial sum of money invested or borrowed.
• Annual Interest Rate (R%): The yearly percentage rate at which interest is calculated.
• Time Period (T): The duration for which the money is borrowed or invested (can be in years, months, etc.).
• Compounding Frequency (n): How often the interest is calculated and added to the principal per year (e.g., Annually, Monthly, Daily).

The calculator uses the standard formula for compound interest to find the Total Future Value (A):

A = P (1 + r/n)^(nt)

Where:

• A = the future value of the investment/loan, including interest
• P = Principal amount
• r = Annual interest rate (as a decimal, e.g., R/100)
• n = Number of times that interest is compounded per year
• t = Number of years the money is invested or borrowed for

The Compound Interest Earned is then calculated as:

Compound Interest = A - P

📊 Key Outputs

• Principal Amount: Your initial investment.
• Compound Interest Earned: The total interest accumulated over the period.
• Total Future Value (A): The sum of the principal amount and the compound interest.
• Interactive Pie Chart: A visual breakdown of the principal versus the interest earned.

Frequently Asked Questions (FAQ)

What is compound interest?

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It's essentially "interest on interest," which can make a sum grow at a faster rate than simple interest.

How does compounding frequency affect my returns?

The more frequently interest is compounded, the higher the effective annual rate. For example, an investment with interest compounded daily will earn slightly more than the same investment with interest compounded annually, because the interest is added to the principal more often.

What is the "Rule of 72"?

The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return. The formula is: Years to Double = 72 / Interest Rate.

Where is compound interest most commonly used?

Compound interest is a core concept in most forms of finance and investing, including savings accounts, retirement funds (like 401(k)s and IRAs), Systematic Investment Plans (SIPs), and loans.