Compound interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods. It's essentially "interest on interest." This can significantly accelerate the growth of your investments over time compared to simple interest.
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
Understanding how compound interest works is crucial for long-term financial planning. Even small differences in interest rates or compounding frequency can lead to significant variations in your final amount over extended periods. This calculator helps you visualize these effects.
Example Calculation:
Let's say you invest $5,000 (Principal) at an annual interest rate of 7% (Interest Rate), compounded monthly (Compounding Frequency = 12), for 20 years (Number of Years).
Using the formula:
A = 5000 * (1 + 0.07/12)^(12*20)
A = 5000 * (1 + 0.00583333)^(240)
A = 5000 * (1.00583333)^(240)
A = 5000 * 4.038693
A ≈ $20,193.47
This means your initial $5,000 investment would grow to approximately $20,193.47 after 20 years due to the power of compounding.
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var timePeriod = parseFloat(document.getElementById("timePeriod").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(interestRate) || isNaN(timePeriod) || isNaN(compoundingFrequency) || principal <= 0 || interestRate < 0 || timePeriod <= 0 || compoundingFrequency <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var rateDecimal = interestRate / 100;
var numberOfPeriods = timePeriod * compoundingFrequency;
var futureValue = principal * Math.pow(1 + rateDecimal / compoundingFrequency, numberOfPeriods);
var totalInterestEarned = futureValue – principal;
resultDiv.innerHTML = "Future Value: $" + futureValue.toFixed(2) + "" +
"Total Interest Earned: $" + totalInterestEarned.toFixed(2);
}