Compound Interest Calculator
Understanding how compound interest works is crucial for long-term financial planning. Compound interest is essentially "interest on interest." When you earn interest on an investment, that interest is added to your principal amount. In the next period, you earn interest not only on your original principal but also on the accumulated interest. This snowball effect can significantly boost your savings over time.
Results:
Total Investment Value:
Total Interest Earned:
How Compound Interest Grows Your Money
The power of compound interest lies in its ability to accelerate your wealth accumulation. The formula used in this calculator is:
A = P (1 + r/n)^(nt)
Where:
A is the future value of the investment/loan, including interestP is the principal investment amount (the initial deposit or loan amount)r is the annual interest rate (as a decimal)n is the number of times that interest is compounded per yeart is the number of years the money is invested or borrowed for
Let's break down the variables:
- Initial Investment (Principal): This is the starting amount of money you invest. A larger principal will naturally lead to a larger final amount.
- Annual Interest Rate: This is the percentage at which your investment grows each year. Higher rates mean faster growth. Remember to convert this percentage to a decimal for the calculation (e.g., 5% becomes 0.05).
- Number of Years: The longer your money is invested, the more time compound interest has to work its magic. Time is a crucial factor in compounding.
- Compounding Frequency: This is how often the interest is calculated and added to the principal. The more frequent the compounding (e.g., daily vs. annually), the slightly higher your returns will be due to earning interest on interest more often.
Consider an example: If you invest $1,000 at an annual interest rate of 5%, compounded monthly, for 10 years, your initial $1,000 will grow significantly more than if it were compounded annually. This is because the interest earned each month is reinvested and starts earning its own interest in the following months.
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value) / 100; // Convert percentage to decimal
var time = parseFloat(document.getElementById("time").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var totalValue = 0;
var totalInterest = 0;
if (isNaN(principal) || isNaN(annualRate) || isNaN(time) || isNaN(compoundingFrequency)) {
document.getElementById("totalValue").textContent = "Invalid input. Please enter valid numbers.";
document.getElementById("totalInterest").textContent = "";
return;
}
// Calculate total number of compounding periods
var n = compoundingFrequency;
var t = time;
var nt = n * t;
// Calculate the future value using the compound interest formula
// A = P (1 + r/n)^(nt)
totalValue = principal * Math.pow((1 + annualRate / n), nt);
// Calculate the total interest earned
totalInterest = totalValue – principal;
document.getElementById("totalValue").textContent = "$" + totalValue.toFixed(2);
document.getElementById("totalInterest").textContent = "$" + totalInterest.toFixed(2);
}
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