Compound interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods. It's often called "interest on interest." This powerful concept can significantly accelerate the growth of your investments over time, making it a cornerstone of long-term financial planning.
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
Understanding each component helps you see how your money grows. The initial principal is your starting point. The annual interest rate dictates how much interest you earn. The compounding frequency determines how often that interest is added back to your principal, allowing it to earn more interest. The longer your money is invested, the more pronounced the effect of compounding becomes.
Using a compound interest calculator is a great way to visualize this growth and plan for your financial goals, whether it's saving for retirement, a down payment on a house, or simply building wealth.
function calculateCompoundInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value);
var compoundingFrequency = parseFloat(document.getElementById("compoundingFrequency").value);
var years = parseFloat(document.getElementById("years").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || isNaN(annualRate) || isNaN(compoundingFrequency) || isNaN(years)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (principal <= 0 || annualRate < 0 || compoundingFrequency <= 0 || years <= 0) {
resultDiv.innerHTML = "Please enter positive values for principal, compounding frequency, and years, and a non-negative rate.";
return;
}
var ratePerPeriod = annualRate / 100 / compoundingFrequency;
var numberOfPeriods = compoundingFrequency * years;
var futureValue = principal * Math.pow(1 + ratePerPeriod, numberOfPeriods);
var totalInterestEarned = futureValue – principal;
resultDiv.innerHTML =
"Initial Principal: $" + principal.toFixed(2) + "" +
"Annual Interest Rate: " + annualRate.toFixed(2) + "%" +
"Compounded: " + compoundingFrequency + " times per year" +
"Investment Duration: " + years + " years" +
"Total Amount After " + years + " Years: $" + futureValue.toFixed(2) + "" +
"Total Compound Interest Earned: $" + totalInterestEarned.toFixed(2) + "";
}