Savings Account Interest Calculator

Compound Interest Formula:

\[ \text{Interest} = P \times (1 + \frac{r}{n})^{n \times t} - P \]

Principal Amount (P):

Annual Interest Rate (r):

Time (t):

years

Compounding Periods per Year (n):

Total Interest Earned:

Total Amount:

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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 allows savings to grow at a faster rate compared to simple interest, where interest is calculated only on the principal amount.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ \text{Interest} = P \times (1 + \frac{r}{n})^{n \times t} - P \]

Where:

$ P $ — Principal 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 due to the exponential growth effect.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning. It demonstrates how investments grow over time and why starting early can significantly increase returns due to the power of compounding.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a 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 any accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (e.g., monthly vs. annually) results in higher returns because interest is calculated on a growing balance more often.

Q3: What's a typical compounding frequency for savings accounts?
A: Most savings accounts compound interest daily or monthly, though this varies by financial institution.

Q4: Can this calculator be used for loans?
A: While the formula is similar, loan calculators typically account for regular payments. This calculator is designed for savings growth.

Q5: Why is my actual bank interest slightly different?
A: Banks may use different day-count conventions or have minimum balance requirements that affect actual earnings.