Compound Interest Calculator
Understanding Compound Interest
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 powerful concept is a cornerstone of long-term investing and wealth accumulation.
How Compound Interest Works
Imagine you deposit $1,000 into a savings account that earns 5% annual interest, compounded quarterly. In the first quarter, you'll earn interest on your $1,000. In the second quarter, you'll earn interest not only on the initial $1,000 but also on the interest earned in the first quarter. This snowball effect is what makes compounding so effective over time.
The Formula
The future value of an investment with compound interest can be calculated using the following formula:
FV = P (1 + r/n)^(nt)
- FV = Future Value of the investment/loan, including interest
- P = Principal amount (the initial amount of money)
- r = Annual interest rate (as a decimal)
- n = Number of times that interest is compounded per year
- t = Number of years the money is invested or borrowed for
Why is Compounding Important?
The power of compounding lies in its ability to accelerate your financial growth. The longer your money is invested and the more frequently it compounds, the greater the potential return. Even small amounts can grow significantly over decades due to this effect. It's also a crucial factor in understanding loans, as compound interest can lead to substantial debt if not managed carefully.
Using This Calculator
This Compound Interest Calculator helps you estimate the future value of an investment based on the principal amount, annual interest rate, the number of years, and how often the interest is compounded. Simply input your values, click "Calculate," and see the projected growth of your money.
Example Calculation:
Let's say you invest $5,000 (Principal) at an annual interest rate of 7% (Annual Rate), for 20 years (Number of Years), compounded monthly (Compounding Frequency = 12).
- P = $5,000
- r = 0.07 (7% as a decimal)
- n = 12 (monthly compounding)
- t = 20
FV = 5000 * (1 + 0.07/12)^(12*20)
FV = 5000 * (1 + 0.00583333)^240
FV = 5000 * (1.00583333)^240
FV = 5000 * 4.03866
FV ≈ $20,193.30
This means your initial $5,000 investment could grow to approximately $20,193.30 after 20 years with monthly compounding at a 7% annual interest rate.
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 resultElement = document.getElementById("result");
resultElement.innerHTML = ""; // Clear previous results
if (isNaN(principal) || isNaN(annualRate) || isNaN(years) || isNaN(compoundingFrequency) || principal < 0 || annualRate < 0 || years < 0 || compoundingFrequency <= 0) {
resultElement.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;
resultElement.innerHTML = "
Results:
" +
"
Principal Amount: $" + principal.toFixed(2) + "" +
"
Annual Interest Rate: " + annualRate.toFixed(2) + "%" +
"
Number of Years: " + years.toFixed(0) + "" +
"
Compounding Frequency: " + getFrequencyText(compoundingFrequency) + "" +
"
Total Interest Earned: $" + totalInterestEarned.toFixed(2) + "" +
"
Future Value: $" + futureValue.toFixed(2) + "";
}
function getFrequencyText(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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