Compound Interest Calculator
Understanding Compound Interest
Compound interest is often called "the eighth wonder of the world" because of its power to grow wealth over time. It's the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
How Compound Interest Works:
Unlike simple interest, which is calculated only on the principal amount, compound interest calculates interest on both the principal and the previously earned interest. This "interest on interest" effect leads to exponential growth, making it a powerful tool for savings and investments.
The formula for compound interest 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 (as a decimal)
- n = the number of times that interest is compounded per year
- t = the number of years the money is invested or borrowed for
Key Factors Influencing Compound Interest:
- Principal Amount: A larger initial investment will naturally yield a larger final amount.
- Interest Rate: A higher interest rate significantly accelerates wealth growth.
- Compounding Frequency: The more frequently interest is compounded (e.g., daily vs. annually), the faster your money grows, although the difference becomes smaller with very high frequencies.
- Time: The longer your money is invested, the more time compound interest has to work its magic. Even small amounts invested early can grow substantially over decades.
Example Calculation:
Let's say you invest $1,000 (Principal) at an annual interest rate of 5% (0.05) compounded quarterly (4 times a year) for 10 years.
- P = $1,000
- r = 0.05
- n = 4
- t = 10
Using the formula:
A = 1000 * (1 + 0.05/4)^(4*10)
A = 1000 * (1 + 0.0125)^40
A = 1000 * (1.0125)^40
A = 1000 * 1.643619…
A ≈ $1,643.62
So, after 10 years, your initial $1,000 investment would grow to approximately $1,643.62, meaning you earned $643.62 in compound interest.
This calculator helps you explore different scenarios and understand the impact of varying these factors on your potential returns.
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(annualInterestRate) || isNaN(compoundingFrequency) || isNaN(numberOfYears) ||
principal <= 0 || annualInterestRate <= 0 || compoundingFrequency <= 0 || numberOfYears <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var ratePerPeriod = annualInterestRate / 100 / compoundingFrequency;
var numberOfPeriods = compoundingFrequency * numberOfYears;
var futureValue = principal * Math.pow((1 + ratePerPeriod), numberOfPeriods);
var totalInterestEarned = futureValue – principal;
resultDiv.innerHTML = "
Calculation Results
" +
"
Principal Amount: $" + principal.toFixed(2) + "" +
"
Annual Interest Rate: " + annualInterestRate.toFixed(2) + "%" +
"
Compounding Frequency: " + getCompoundingFrequencyText(compoundingFrequency) + " per year" +
"
Number of Years: " + numberOfYears.toFixed(2) + "" +
"
Total Future Value: $" + futureValue.toFixed(2) + "" +
"
Total Compound Interest Earned: $" + totalInterestEarned.toFixed(2) + "";
}
function getCompoundingFrequencyText(frequency) {
switch(frequency) {
case 1: return "Annually";
case 2: return "Semi-annually";
case 4: return "Quarterly";
case 12: return "Monthly";
case 52: return "Weekly";
case 365: return "Daily";
default: return frequency;
}
}
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