1. What is Compound Interest?

Compound interest is the addition of interest to the principal sum of a loan or deposit, where the interest that has been added also earns interest. This differs from simple interest, where interest is not compounded.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( FV \) — Future Value
• \( PV \) — Present Value (initial amount)
• \( r \) — Annual interest rate (in decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested for (in years)

Explanation: The formula accounts for the exponential growth of money due to interest being earned on previously accumulated interest.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning, investment decisions, and loan calculations. It demonstrates how investments grow over time and how debts can accumulate.

4. Using the Calculator

Tips: Enter present value in USD, interest rate as a decimal (e.g., 0.05 for 5%), number of compounding periods per year, and time in years. 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 results?
A: More frequent compounding leads to higher returns. Daily compounding yields more than monthly, which yields more than annual compounding.

Q3: What's the Rule of 72?
A: A quick way to estimate doubling time: 72 divided by the interest rate gives approximate years to double your money.

Q4: Can this calculator handle different currencies?
A: The calculation works for any currency, but results are displayed in USD by default.

Q5: How accurate is this calculator?
A: It provides mathematically precise results based on the inputs, but doesn't account for taxes, fees, or changing rates.