This calculator helps you project the growth of your savings account over time, considering your initial deposit, regular monthly contributions, and the annual interest rate. Understanding compound interest is crucial for effective long-term financial planning.
How It Works: Compound Interest Explained
Compound interest is the interest earned on both the initial principal and the accumulated interest from previous periods. It's often described as "interest on interest," and it's the engine that drives significant wealth accumulation over time.
The formula used in this calculator takes into account:
Initial Deposit: The lump sum you start with.
Monthly Contributions: Regular additions to your savings.
Interest Rate: The annual percentage rate (APR) your savings earn.
Compounding Frequency: This calculator assumes interest is compounded monthly, which is common for savings accounts.
The Math Behind the Calculator
The calculation involves two main parts: the growth of the initial deposit and the growth of the series of monthly contributions.
1. Future Value of Initial Deposit:
This uses the compound interest formula for a lump sum:
`FV = PV * (1 + r/n)^(nt)`
Where:
– `FV` = Future Value
– `PV` = Present Value (Initial Deposit)
– `r` = Annual interest rate (as a decimal)
– `n` = Number of times interest is compounded per year (12 for monthly)
– `t` = Number of years
2. Future Value of Monthly Contributions (Annuity):
This uses the future value of an ordinary annuity formula:
`FV_annuity = P * [((1 + i)^N – 1) / i]`
Where:
– `FV_annuity` = Future Value of the annuity
– `P` = Periodic Payment (Monthly Contribution)
– `i` = Periodic interest rate (Annual rate / 12)
– `N` = Total number of periods (Number of years * 12)
The total savings is the sum of the future value of the initial deposit and the future value of the monthly contributions. The total interest earned is the total savings minus the total amount contributed (initial deposit + total monthly contributions).
Why Use This Calculator?
Visualize Growth: See how your savings can grow over different time horizons.
Financial Planning: Estimate how much you need to save monthly to reach a specific financial goal (e.g., down payment, retirement).
Understand Compounding: Gain a clearer appreciation for the power of starting early and contributing consistently.
Compare Scenarios: Experiment with different interest rates, contribution amounts, and time periods to find the best strategy for you.
Remember, this is a projection. Actual returns may vary due to changes in interest rates, fees, and taxes.
function calculateSavingsInterest() {
var initialDeposit = parseFloat(document.getElementById("initialDeposit").value);
var monthlyContribution = parseFloat(document.getElementById("monthlyContribution").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var numberOfYears = parseInt(document.getElementById("numberOfYears").value);
var resultDiv = document.getElementById("result");
var totalSavingsElement = document.getElementById("totalSavings");
var totalInterestEarnedElement = document.getElementById("totalInterestEarned");
// Input validation
if (isNaN(initialDeposit) || initialDeposit < 0 ||
isNaN(monthlyContribution) || monthlyContribution < 0 ||
isNaN(annualInterestRate) || annualInterestRate < 0 ||
isNaN(numberOfYears) || numberOfYears 0) {
futureValueMonthlyContributions = monthlyContribution * (Math.pow(1 + monthlyInterestRate, numberOfMonths) – 1) / monthlyInterestRate;
} else {
// Simple addition if interest rate is 0
futureValueMonthlyContributions = monthlyContribution * numberOfMonths;
}
var totalSavings = futureValueInitialDeposit + futureValueMonthlyContributions;
var totalContributions = initialDeposit + (monthlyContribution * numberOfMonths);
var totalInterestEarned = totalSavings – totalContributions;
totalSavingsElement.textContent = "Total Savings: $" + totalSavings.toFixed(2);
totalInterestEarnedElement.textContent = "Total Interest Earned: $" + totalInterestEarned.toFixed(2);
resultDiv.style.display = 'block';
}