How Mortgage Rates Are Calculated

Compound Interest Calculator

This calculator helps you estimate the future value of an investment with compound interest.

Annually Semi-Annually Quarterly Monthly Daily

Understanding Compound Interest

Compound interest is the interest on a savings account or loan that is calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a specific date. This is also referred to as "interest on interest," a concept that makes the investment grow at a faster rate than simple interest over time.

How it Works:

Imagine you invest $1,000 at an annual interest rate of 5%, compounded annually. After the first year, you'll earn $50 in interest ($1,000 * 0.05), bringing your total to $1,050. In the second year, you'll earn interest not just on the original $1,000, but also on the $50 interest from the first year. This means you'll earn $52.50 in interest ($1,050 * 0.05), and your total will grow to $1,102.50. This accelerating growth is the power of compounding.

The Formula:

The future value (FV) of an investment using compound interest can be calculated with 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

Key Factors Influencing Growth:

  • Principal Amount: A larger initial investment will yield higher returns over time.
  • Interest Rate: Higher interest rates lead to faster growth.
  • Time Period: The longer your money is invested, the more significant the effect of compounding.
  • Compounding Frequency: More frequent compounding (e.g., daily vs. annually) generally leads to slightly higher returns due to interest being added and earning interest more often.
function calculateCompoundInterest() { var principal = parseFloat(document.getElementById("principal").value); var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value); var timePeriod = parseFloat(document.getElementById("timePeriod").value); var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value); var resultDiv = document.getElementById("result"); resultDiv.innerHTML = ""; // Clear previous results if (isNaN(principal) || isNaN(annualInterestRate) || isNaN(timePeriod) || isNaN(compoundingFrequency)) { resultDiv.innerHTML = "Please enter valid numbers for all fields."; return; } if (principal <= 0 || annualInterestRate < 0 || timePeriod <= 0 || compoundingFrequency <= 0) { resultDiv.innerHTML = "Please enter positive values for principal, time, and compounding frequency, and a non-negative interest rate."; return; } var ratePerPeriod = annualInterestRate / 100 / compoundingFrequency; var numberOfPeriods = compoundingFrequency * timePeriod; var futureValue = principal * Math.pow((1 + ratePerPeriod), numberOfPeriods); // Format the results for better readability var formattedFutureValue = futureValue.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); var formattedPrincipal = principal.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); var formattedInterestEarned = (futureValue – principal).toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); resultDiv.innerHTML = "Principal Amount: $" + formattedPrincipal + "" + "Annual Interest Rate: " + annualInterestRate + "%" + "Time Period: " + timePeriod + " years" + "Compounding Frequency: " + getCompoundingFrequencyText(compoundingFrequency) + "" + "Total Interest Earned: $" + formattedInterestEarned + "" + "Future Value: $" + formattedFutureValue + ""; } function getCompoundingFrequencyText(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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