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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. Unlike simple interest, which is calculated only on the initial principal amount, compound interest is calculated on the initial principal *and* the accumulated interest from previous periods. This means your money starts earning money on itself, creating a snowball effect.

How Compound Interest Works

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

Essentially, with each compounding period, the interest earned is added to the principal, and the next period's interest is calculated on this new, larger amount. The more frequently interest is compounded (e.g., daily vs. annually), the faster your money grows.

Why Use a Compound Interest Calculator?

Using a compound interest calculator can help you visualize the potential growth of your savings or investments. It's a powerful tool for:

  • Financial Planning: Estimate how much your savings will be worth in the future, helping you set realistic goals for retirement, education, or other major purchases.
  • Investment Analysis: Compare different investment options by seeing how much interest they might generate over time.
  • Debt Management: Understand how compound interest can work against you with loans and credit cards, motivating you to pay them off faster.

By inputting your initial investment (principal), the annual interest rate, how often the interest is compounded, and the time period, you can quickly see the projected future value of your money, including the total interest earned.

Example Calculation

Let's say you invest $5,000 (Principal) at an 8% annual interest rate (r = 0.08), compounded monthly (n = 12), for 20 years (t = 20).

Using the formula: A = 5000 * (1 + 0.08/12)^(12*20)

A = 5000 * (1 + 0.00666667)^(240)

A = 5000 * (1.00666667)^(240)

A = 5000 * 4.926802

A ≈ $24,634.01

In this example, your initial $5,000 would grow to approximately $24,634.01 after 20 years, meaning you would have earned $19,634.01 in compound interest!

function calculateCompoundInterest() { var principal = parseFloat(document.getElementById("principal").value); var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value); var compoundingFrequency = parseFloat(document.getElementById("compoundingFrequency").value); var timePeriodInYears = parseFloat(document.getElementById("timePeriodInYears").value); var resultDiv = document.getElementById("result"); resultDiv.innerHTML = ""; // Clear previous results if (isNaN(principal) || isNaN(annualInterestRate) || isNaN(compoundingFrequency) || isNaN(timePeriodInYears) || principal <= 0 || annualInterestRate <= 0 || compoundingFrequency <= 0 || timePeriodInYears <= 0) { resultDiv.innerHTML = "Please enter valid positive numbers for all fields."; return; } var ratePerPeriod = annualInterestRate / 100 / compoundingFrequency; var numberOfPeriods = compoundingFrequency * timePeriodInYears; var futureValue = principal * Math.pow((1 + ratePerPeriod), numberOfPeriods); var totalInterestEarned = futureValue – principal; resultDiv.innerHTML = "Principal Amount: $" + principal.toFixed(2) + "" + "Annual Interest Rate: " + annualInterestRate.toFixed(2) + "%" + "Compounding Frequency: " + compoundingFrequency + " times per year" + "Time Period: " + timePeriodInYears + " years" + "
" + "Future Value: $" + futureValue.toFixed(2) + "" + "Total Interest Earned: $" + totalInterestEarned.toFixed(2) + ""; }

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