Compound Interest Calculator
Understanding Compound Interest
Compound interest, often referred to as "interest on interest," is a powerful concept in finance that allows your investments to grow exponentially over time. Unlike simple interest, which is calculated only on the initial principal amount, compound interest is calculated on the principal amount plus any accumulated interest from previous periods.
How it Works:
Imagine you invest $1,000 with an annual interest rate of 5% compounded annually. After the first year, you'd earn $50 in interest ($1,000 * 0.05), bringing your total to $1,050. In the second year, the interest is calculated on $1,050, not just the original $1,000. So, you'd earn $52.50 ($1,050 * 0.05), and your total would be $1,102.50.
The Formula:
The future value of an investment with compound interest is calculated using the following formula:
A = P (1 + r/n)^(nt)
Where:
A = the future value of the investment/loan, including interestP = 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 yeart = the number of years the money is invested or borrowed for
Factors Affecting Growth:
- Principal Amount: A larger initial investment will naturally yield greater returns.
- Interest Rate: Higher interest rates accelerate growth significantly.
- Compounding Frequency: The more frequently interest is compounded (e.g., daily vs. annually), the faster your investment grows, as interest starts earning interest sooner.
- Time: The longer your money is invested, the more time compound interest has to work its magic, leading to substantial growth over extended periods.
The compound interest calculator above helps you visualize how these factors can impact your investment's future value. Start with realistic numbers for your potential investments and explore different scenarios to understand the power of compounding.
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var years = parseFloat(document.getElementById("years").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(annualRate) || isNaN(compoundingFrequency) || isNaN(years)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (principal <= 0 || annualRate < 0 || compoundingFrequency <= 0 || years <= 0) {
resultDiv.innerHTML = "Please enter positive values for principal, compounding frequency, and years, and a non-negative interest rate.";
return;
}
var rateDecimal = annualRate / 100;
var timePeriods = compoundingFrequency * years;
var ratePerPeriod = rateDecimal / compoundingFrequency;
var futureValue = principal * Math.pow((1 + ratePerPeriod), timePeriods);
var totalInterestEarned = futureValue – principal;
resultDiv.innerHTML = "
Results:
" +
"Initial Investment: $" + principal.toFixed(2) + "" +
"Annual Interest Rate: " + annualRate.toFixed(2) + "%" +
"Compounded: " + getFrequencyName(compoundingFrequency) + " (" + compoundingFrequency + " times per year)" +
"Investment Period: " + years + " years" +
"
Total Value After " + years + " Years: $" + futureValue.toFixed(2) + "" +
"Total Interest Earned: $" + totalInterestEarned.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 52: return "Weekly";
case 365: return "Daily";
default: return "Custom";
}
}
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