Compound interest, often called "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.
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
The "compounding frequency" (n) plays a crucial role. The more frequently interest is compounded (e.g., daily vs. annually), the faster your investment will grow, assuming all other factors remain the same. This is because interest starts earning interest sooner and more often.
Understanding and utilizing compound interest is key to long-term wealth building through savings and investments.
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value);
var time = parseFloat(document.getElementById("time").value);
var compoundingFrequency = parseFloat(document.getElementById("compoundingFrequency").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(annualRate) || isNaN(time) || isNaN(compoundingFrequency)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (principal < 0 || annualRate < 0 || time < 0 || compoundingFrequency <= 0) {
resultDiv.innerHTML = "Please enter positive values for principal, rate, and time, and a positive compounding frequency.";
return;
}
var rateDecimal = annualRate / 100;
var n = compoundingFrequency;
var t = time;
var P = principal;
var amount = P * Math.pow((1 + rateDecimal / n), (n * t));
var interestEarned = amount – P;
resultDiv.innerHTML = "