Compound Interest calculator v2
Calculate the power of compound interest on your investments
📊 Understanding Compound Interest
Compound interest is the addition of interest to the principal sum of a loan or deposit. It's the result of reinvesting interest, rather than paying it out, so that interest in the next period is earned on the principal sum plus previously accumulated interest.
Albert Einstein allegedly called compound interest "the eighth wonder of the world" and said "he who understands it, earns it; he who doesn't, pays it."
🔍 How Compound Interest Works
The compound interest formula is:
A = P(1 + r/n)^(nt)
- A: Final amount
- P: Principal (initial amount)
- r: Annual interest rate (decimal)
- n: Number of times interest compounds per year
- t: Number of years
❓ Frequently Asked Questions
What's the difference between simple and compound interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any previously earned interest.
How does compounding frequency affect returns?
More frequent compounding generally leads to higher returns, but the difference becomes smaller as frequency increases. Daily compounding vs. monthly compounding has minimal difference.
Why are regular contributions important?
Regular contributions significantly boost your final amount through dollar-cost averaging and give more money time to compound, dramatically increasing your wealth over time.