1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It's often described as "interest on interest" and can significantly boost investment growth over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of the investment/loan
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (decimal)
• \( t \) — Time the money is invested for in years

Explanation: The formula calculates how much your initial investment will grow when interest is compounded annually over a specified period.

3. Importance of Compound Interest

Details: Compound interest is a powerful concept in finance that allows investments to grow exponentially over time. It's the foundation of long-term wealth building and retirement planning.

4. Using the Calculator

Tips: Enter the principal amount in your local currency, annual interest rate as a percentage, and time period 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 often is interest compounded in this calculator?
A: This calculator assumes annual compounding. For more frequent compounding, the formula would need adjustment.

Q3: What is the Rule of 72?
A: The Rule of 72 is a quick way to estimate how long it takes for an investment to double: 72 divided by the annual interest rate.

Q4: Can compound interest work against me?
A: Yes, when borrowing money, compound interest can significantly increase the total amount you owe over time.

Q5: How can I maximize compound interest benefits?
A: Start investing early, contribute regularly, and choose investments with competitive returns to maximize compound growth.