Compound Interest Calculator
" + "Total Amount After " + time + " Years: $" + amount.toFixed(2) + "" + "Total Interest Earned: $" + interestEarned.toFixed(2) + ""; } function getFrequencyName(frequency) { switch (frequency) { case 1: return "Annually"; case 2: return "Semi-Annually"; case 4: return "Quarterly"; case 12: return "Monthly"; case 365: return "Daily"; default: return "Unknown"; } } .calculator-wrapper { font-family: sans-serif; border: 1px solid #ccc; padding: 20px; border-radius: 8px; max-width: 500px; margin: 20px auto; background-color: #f9f9f9; } .calculator-wrapper h2 { text-align: center; margin-bottom: 20px; color: #333; } .calculator-inputs { display: grid; gap: 15px; } .input-group { display: flex; flex-direction: column; } .input-group label { margin-bottom: 5px; font-weight: bold; color: #555; } .input-group input[type="number"], .input-group select { padding: 10px; border: 1px solid #ccc; border-radius: 4px; font-size: 1em; } .calculator-wrapper button { background-color: #007bff; color: white; padding: 12px 20px; border: none; border-radius: 4px; cursor: pointer; font-size: 1.1em; transition: background-color 0.3s ease; margin-top: 10px; } .calculator-wrapper button:hover { background-color: #0056b3; } .calculator-result { margin-top: 25px; padding: 15px; border: 1px solid #ddd; background-color: #fff; border-radius: 4px; text-align: center; } .calculator-result p { margin-bottom: 10px; line-height: 1.6; } .calculator-result hr { margin-top: 15px; margin-bottom: 15px; border: 0; border-top: 1px solid #eee; }
Understanding Compound Interest
Compound interest is often called "the eighth wonder of the world" because of its power to grow your money over time. Unlike simple interest, which is calculated only on the initial principal amount, compound interest is calculated on the initial principal and also on the accumulated interest from previous periods.
How Compound Interest Works
The core principle is that your earnings start earning their own earnings. Let's break down the formula:
A = P (1 + r/n)^(nt)
- A is the future value of the investment/loan, including interest.
- P is the principal investment amount (the initial deposit or loan amount).
- r is the annual interest rate (as a decimal, so 5% becomes 0.05).
- n is the number of times that interest is compounded per year (e.g., 1 for annually, 4 for quarterly, 12 for monthly).
- t is the number of years the money is invested or borrowed for.
The term (1 + r/n) represents the interest rate per compounding period. The term (nt) represents the total number of compounding periods over the investment's lifetime.
Why Compounding Matters
The magic of compounding lies in its exponential growth. The more frequently interest is compounded and the longer your money stays invested, the more significant the impact of earning interest on your interest becomes. This is why starting early with investments like retirement funds or savings accounts can make a substantial difference in the long run.
Example Calculation
Let's use the calculator to see an example:
- Initial Investment (Principal): $5,000
- Annual Interest Rate: 7%
- Number of Years: 20
- Compounding Frequency: Monthly (12 times per year)
Using the compound interest formula:
A = 5000 * (1 + 0.07/12)^(12*20)
A = 5000 * (1 + 0.0058333)^(240)
A = 5000 * (1.0058333)^240
A = 5000 * 4.0387
A ≈ $20,193.57
In this example, your initial $5,000 would grow to approximately $20,193.57 over 20 years, with roughly $15,193.57 being earned in interest.
The higher the compounding frequency (e.g., daily vs. annually), the slightly faster your money will grow, though the effect becomes less dramatic as frequency increases.