Compound Interest Calculator
Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world" because of its power to grow your money over time. Unlike simple interest, which is calculated only on the initial principal amount, compound interest is calculated on the principal amount plus the accumulated interest from previous periods.
How Compound Interest Works
The formula for compound interest is:
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
This calculator helps you visualize how your initial deposit can grow with compounding interest over a specified period, considering different interest rates and compounding frequencies.
Why is Compounding Important?
The magic of compounding lies in its exponential growth. The longer your money is invested and the more frequently it compounds, the more significant the growth becomes. Even small differences in interest rates or compounding periods can lead to substantial differences in your final balance over many years. This is why starting to save and invest early is so beneficial.
Using the Calculator
To use the calculator:
- Enter your Initial Deposit (the amount you are starting with).
- Input the Annual Interest Rate you expect to earn, as a percentage.
- Specify the Number of Years you plan to invest the money.
- Choose the Compounding Frequency – how often the interest is calculated and added to your principal (e.g., annually, monthly, daily).
- Click "Calculate" to see your projected future balance.
Example:
Let's say you deposit $5,000 (Principal) into an account earning an 8% annual interest rate (Annual Interest Rate). You plan to leave it for 20 years (Number of Years), and the interest is compounded monthly (Compounding Frequency = 12).
Using the calculator with these inputs will show you the substantial growth your initial deposit can achieve through the power of compounding.
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value);
var years = parseFloat(document.getElementById("years").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(annualRate) || isNaN(years) || isNaN(compoundingFrequency) || principal < 0 || annualRate < 0 || years < 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var ratePerPeriod = annualRate / 100 / compoundingFrequency;
var numberOfPeriods = compoundingFrequency * years;
var futureValue = principal * Math.pow((1 + ratePerPeriod), numberOfPeriods);
var totalInterestEarned = futureValue – principal;
resultDiv.innerHTML = "
Calculation Results
" +
"Initial Deposit: $" + principal.toFixed(2) + "" +
"Annual Interest Rate: " + annualRate.toFixed(2) + "%" +
"Investment Period: " + years + " years" +
"Compounding Frequency: " + getFrequencyName(compoundingFrequency) + "" +
"
Total Future Value: $" + 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 365: return "Daily";
default: return "Custom";
}
}
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