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. It's often referred to as "interest on interest." This means that your money grows at an accelerating rate over time, making it a powerful tool for wealth accumulation.
The formula for compound interest is:
A = P (1 + r/n)^(nt)
Where:
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
Understanding compound interest is crucial for both investors looking to grow their savings and borrowers who want to understand the true cost of debt. By understanding the variables involved, you can make more informed financial decisions.
Compound Interest Calculator
Enter the following details to calculate the future value of your investment:
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var compoundingFrequency = parseFloat(document.getElementById("compoundingFrequency").value);
var years = parseFloat(document.getElementById("years").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(interestRate) || isNaN(compoundingFrequency) || isNaN(years)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (principal <= 0 || interestRate < 0 || compoundingFrequency <= 0 || years <= 0) {
resultDiv.innerHTML = "Please enter positive values for all fields, except for interest rate which can be 0 or positive.";
return;
}
var ratePerPeriod = interestRate / 100 / compoundingFrequency;
var numberOfPeriods = compoundingFrequency * years;
var futureValue = principal * Math.pow((1 + ratePerPeriod), numberOfPeriods);
resultDiv.innerHTML = "Future Value: $" + futureValue.toFixed(2);
}