High Yield Investment Calculator

High Yield Investment Calculator - Compound Interest

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Time (t):

years

Compounding Periods (n):

Final Amount (A):

Interest Earned:

Unit Converter ▲

Unit Converter ▼

From:	To:

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 often called "interest on interest" and can significantly boost investment returns over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Where:

\( A \) — Final amount including interest
\( P \) — 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. Importance of Compound Interest

Details: Compound interest is a powerful concept that allows investments to grow exponentially over time. It's the foundation of most long-term investment strategies and retirement planning.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, time in years, and select how often interest is compounded. 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., daily vs. annually) results in higher returns due to the "interest on interest" effect occurring more often.

Q3: What's a realistic interest rate for high-yield investments?
A: While rates vary, high-yield savings accounts typically offer 3-5% APY, while riskier investments may offer higher returns.

Q4: How important is the principal amount?
A: The principal is crucial as compound interest magnifies differences - a larger principal will generate significantly more interest over time.

Q5: What's the Rule of 72?
A: It's a quick way to estimate how long an investment will take to double: divide 72 by the interest rate (e.g., at 6%, money doubles in ~12 years).