Compound Interest Calculator
Understanding Compound Interest
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.
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 is a powerful tool for wealth building over the long term because it allows your money to grow at an accelerated rate. Unlike simple interest, which is calculated only on the principal amount, compound interest means your earnings start generating their own earnings.
How it 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
The power of compounding comes from the fact that your interest earned in one period is added to the principal for the next period. This creates a snowball effect, where your investment grows exponentially over time, especially when interest is compounded more frequently.
Example:
Let's say you invest $1,000 (P) at an annual interest rate of 5% (r) for 10 years (t), compounded monthly (n=12).
Using the formula:
A = 1000 * (1 + 0.05/12)^(12*10)
A = 1000 * (1 + 0.00416667)^120
A = 1000 * (1.00416667)^120
A = 1000 * 1.647009
A ≈ $1,647.01
This means after 10 years, your initial investment of $1,000 would have grown to approximately $1,647.01, with $647.01 being the interest earned through 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 = parseFloat(document.getElementById("compoundingFrequency").value);
var resultElement = document.getElementById("result");
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 = years * compoundingFrequency;
var futureValue = principal * Math.pow(1 + ratePerPeriod, numberOfPeriods);
var totalInterest = futureValue – principal;
resultElement.innerHTML =
"
Calculation Results:
" +
"
Initial Investment: $" + principal.toFixed(2) + "" +
"
Annual Interest Rate: " + annualRate.toFixed(2) + "%" +
"
Number of Years: " + years + "" +
"
Compounding Frequency: " + getCompoundingFrequencyName(compoundingFrequency) + "" +
"
Total Amount after " + years + " years: $" + futureValue.toFixed(2) + "" +
"
Total Interest Earned: $" + totalInterest.toFixed(2) + "";
}
function getCompoundingFrequencyName(frequency) {
switch(frequency) {
case 1: return "Annually";
case 2: return "Semi-Annually";
case 4: return "Quarterly";
case 12: return "Monthly";
case 52: return "Weekly";
case 365: return "Daily";
default: return "Custom";
}
}
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