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Compound Interest Calculator

Initial Investment ($): Annual Interest Rate (%): Investment Duration (Years): Compounding Frequency: Annually Semi-annually Quarterly Monthly Daily

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"); if (isNaN(principal) || isNaN(annualRate) || isNaN(years) || isNaN(compoundingFrequency) || principal < 0 || annualRate < 0 || years < 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 interestEarned = futureValue – principal; resultElement.innerHTML = "

Results:

" + "Future Value: $" + futureValue.toFixed(2) + "" + "Total Interest Earned: $" + interestEarned.toFixed(2) + ""; }

Understanding Compound Interest

Compound interest is often referred to as "interest on interest." It's a powerful concept in finance that allows your investments to grow exponentially over time. Unlike simple interest, which is calculated only on the initial principal amount, compound interest is calculated on the principal amount plus the accumulated interest from previous periods.

How Compound Interest Works

The magic of compounding lies in its ability to accelerate wealth accumulation. When interest is earned, it's added back to the principal. In the next compounding period, interest is calculated on this new, larger principal. This cycle repeats, leading to a snowball effect where your money grows at an increasing rate.

The Compound Interest Formula

The future value of an investment with compound interest can be calculated using the following formula:

FV = P (1 + r/n)^(nt)

Where:

FV is the future value of the investment/loan, including interest
P is the principal investment amount (the initial deposit or loan amount)
r is the annual interest rate (as a decimal)
n is the number of times that interest is compounded per year
t is the number of years the money is invested or borrowed for

Factors Affecting Compound Interest

Principal Amount: A larger initial investment will naturally yield a larger future value.
Interest Rate: Higher interest rates lead to faster growth.
Time: The longer your money is invested, the more opportunities it has to compound and grow significantly. Even small differences in time can have a substantial impact due to the exponential nature of compounding.
Compounding Frequency: The more frequently interest is compounded (e.g., daily vs. annually), the greater the impact on the future value, although this effect becomes less pronounced with very high frequencies.

Example Calculation

Let's say you invest $1,000 (Principal) at an annual interest rate of 5% (Annual Interest Rate) for 10 years (Investment Duration), compounded monthly (Compounding Frequency = 12).

Principal (P) = $1,000
Annual Interest Rate (r) = 5% or 0.05
Number of Years (t) = 10
Compounding Frequency (n) = 12 (monthly)

Using the formula:

Rate per period (r/n) = 0.05 / 12 ≈ 0.00416667

Number of periods (nt) = 10 * 12 = 120

Future Value (FV) = 1000 * (1 + 0.00416667)^120

FV ≈ 1000 * (1.00416667)^120

FV ≈ 1000 * 1.647009

FV ≈ $1,647.01

The total interest earned would be $1,647.01 – $1,000 = $647.01.

This calculator helps you easily explore these scenarios and understand the potential growth of your investments through the power of compound interest.