Compound Interest Calculator
Calculate compound interest with options for different compounding frequencies.
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Results
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About Compound Interest
Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. 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.
Formula
A = P(1 + r/n)^(nt)
Where:
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Number of times interest is compounded per year
- t = Time (in years)
Compounding Frequencies
The frequency at which interest is compounded can significantly affect the final amount:
- Annually: Interest is calculated once per year
- Semi-annually: Interest is calculated twice per year
- Quarterly: Interest is calculated four times per year
- Monthly: Interest is calculated 12 times per year
- Daily: Interest is calculated 365 times per year
- Continuous: Interest is calculated continuously (using the formula A = Pe^(rt))
Example
If you invest $10,000 at an annual interest rate of 5%, compounded monthly for 5 years:
A = $10,000 × (1 + 0.05/12)^(12×5) = $12,833.59
This gives you a total interest of $2,833.59 over the 5-year period.
Applications
Compound interest is commonly used in:
- Savings accounts and certificates of deposit (CDs)
- Investment accounts and retirement funds
- Mortgages and loans
- Credit card debt