1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It's what makes savings and investments grow at an accelerating rate over time.

2. How the Calculator Works

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested for (years)

Explanation: The more frequently interest is compounded, the greater the return on investment.

3. Understanding Amortization

Details: The amortization schedule shows how each compounding period contributes to the growth of your investment, breaking down the interest earned and new balance at each step.

4. Using the Calculator

Tips: Enter principal amount, annual interest rate, time period, and compounding frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (e.g., monthly vs. annually) results in higher returns due to the "interest on interest" effect.

Q3: What's the best compounding frequency?
A: Generally, the more frequent the compounding, the better. Daily compounding yields slightly more than monthly, which yields more than annually.

Q4: Can I use this for debt calculations?
A: Yes, the same formula applies to debt, though with debt you want less frequent compounding.

Q5: How accurate is this calculator?
A: It provides precise mathematical calculations but doesn't account for taxes, fees, or changing interest rates.