Calculating the interest earned on an investment or savings account is a fundamental concept in personal finance. It helps you understand the growth potential of your money over time, especially when interest is compounded. This calculator assists you in determining how much interest your initial deposit (principal) will generate based on the annual interest rate, the investment duration, and how often the interest is compounded.
The Formula for Compound Interest
The most common method for calculating interest earned over time is using the compound interest formula. Compound interest means that you earn interest not only on your initial principal but also on the accumulated interest from previous periods. This leads to exponential growth compared to simple interest.
The formula for compound interest is:
A = P (1 + r/n)^(nt)
Where:
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
To find the interest earned specifically, you subtract the principal from the future value:
Interest Earned = A – P
How the Calculator Works:
Our calculator takes your inputs and applies this formula:
Principal Amount (P): The initial sum of money you invest.
Annual Interest Rate (r): The rate of return you earn per year, entered as a percentage and converted to a decimal in the calculation (e.g., 5% becomes 0.05).
Time Period (t): The number of years your money will be invested.
Compounding Frequency (n): How often the interest is calculated and added to the principal. This can be annually (1), semi-annually (2), quarterly (4), monthly (12), or daily (365). A higher frequency generally leads to slightly more interest earned over time.
The calculator first computes the total future value (A) using the compound interest formula, and then subtracts your initial principal to show you the exact amount of interest you will have earned.
Use Cases for This Calculator:
Savings Accounts: Estimate potential earnings on your savings.
Certificates of Deposit (CDs): Understand the returns on fixed-term investments.
Investment Growth: Project potential growth of investment principal over time, assuming a fixed annual rate.
Financial Planning: Help set savings goals and understand how long it might take to reach them.
Understanding interest earned is key to making informed financial decisions and maximizing the growth of your wealth.
function calculateInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value);
var time = parseFloat(document.getElementById("time").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || principal <= 0 ||
isNaN(annualRate) || annualRate < 0 ||
isNaN(time) || time <= 0 ||
isNaN(compoundingFrequency) || compoundingFrequency <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
resultDiv.style.backgroundColor = "#ffc107"; // Warning yellow
return;
}
// Convert annual rate from percentage to decimal
var rateDecimal = annualRate / 100;
// Calculate the future value using the compound interest formula
// A = P (1 + r/n)^(nt)
var futureValue = principal * Math.pow(1 + rateDecimal / compoundingFrequency, compoundingFrequency * time);
// Calculate the interest earned
var interestEarned = futureValue – principal;
// Display the result
// Format the numbers to two decimal places
var formattedInterestEarned = interestEarned.toFixed(2);
var formattedFutureValue = futureValue.toFixed(2);
var formattedPrincipal = principal.toFixed(2);
resultDiv.innerHTML = "Total Interest Earned: $" + formattedInterestEarned + "" +
"Total Future Value: $" + formattedFutureValue + "";
resultDiv.style.backgroundColor = "var(–success-green)"; // Reset to success green
}