Compound Interest Calculator
Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world" because of its power to grow wealth over time. It's the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
How Compound Interest Works
The core principle is that your earnings start earning earnings. Unlike simple interest, which is only calculated on the initial principal amount, compound interest allows your money to grow exponentially.
- Principal: The initial amount of money invested or borrowed.
- Interest Rate: The percentage at which the principal grows per period.
- Time: The duration for which the money is invested or borrowed.
- Compounding Frequency: How often the interest is calculated and added to the principal. More frequent compounding leads to faster growth.
The Compound Interest Formula
The standard 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
Why Use a Compound Interest Calculator?
A compound interest calculator helps you visualize the potential growth of your investments or understand the cost of borrowing over time. By inputting different variables like principal, interest rate, time, and compounding frequency, you can see how small changes can have a significant impact on the final amount.
Example Calculation:
Let's say you invest $5,000 (Principal) at an annual interest rate of 7% (Annual Interest Rate) for 15 years (Time), compounded monthly (Compounding Frequency).
Using the calculator, you would input:
- Principal: $5,000
- Annual Interest Rate: 7%
- Time: 15 years
- Compounding Frequency: Monthly (12)
The calculator would then determine the future value of your investment, illustrating the power of compounding over nearly two decades.
function calculateCompoundInterest() {
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) || isNaN(annualRate) || isNaN(time) || isNaN(compoundingFrequency) || principal <= 0 || annualRate < 0 || time <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var ratePerPeriod = (annualRate / 100) / compoundingFrequency;
var numberOfPeriods = time * compoundingFrequency;
var futureValue = principal * Math.pow((1 + ratePerPeriod), numberOfPeriods);
var totalInterestEarned = futureValue – principal;
resultDiv.innerHTML = "
Calculation Results
" +
"
Future Value: $" + futureValue.toFixed(2) + "" +
"
Total Interest Earned: $" + totalInterestEarned.toFixed(2) + "";
}
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