Savings Account Calculator with 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:

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1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It causes wealth to grow faster than simple interest, where interest is calculated only on the principal amount.

2. How the Calculator Works

The calculator uses the compound interest formula:

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

Where:

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

Explanation: The more frequently interest is compounded, the greater the return due to the "interest on interest" effect.

3. Importance of Compounding

Details: Compounding can significantly increase investment returns over time. Even small differences in compounding frequency can lead to large differences in final amounts for long-term investments.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as percentage), investment period 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 more frequent application of interest.

Q3: What's a typical compounding frequency for savings accounts?
A: Most savings accounts compound interest daily or monthly.

Q4: Can I use this for investments other than savings accounts?
A: Yes, this formula applies to any investment with compound growth, including CDs, bonds, and certain types of investment accounts.

Q5: How important is the interest rate compared to compounding frequency?
A: The interest rate has a larger impact on final returns, but compounding frequency becomes more important over longer time periods.