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 called "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:

• \( A \) — Final amount
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (as decimal)
• \( n \) — Number of times interest compounds per year
• \( t \) — Time in years

Explanation: The formula calculates how your investment grows when interest is earned on both your initial investment and the accumulated interest.

3. Importance of Compound Interest in Investing

Details: Compound interest is a powerful force in wealth building. The longer your money compounds, the more dramatic the growth becomes, making it essential for long-term investment strategies and retirement planning.

4. Using the Calculator

Tips: Enter your initial investment amount, annual interest rate, select how often interest compounds, and the time period. 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 both principal and accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (daily vs. annually) results in higher returns due to interest being calculated more often.

Q3: What is the Rule of 72?
A: A quick way to estimate how long it takes to double your money: divide 72 by your annual interest rate.

Q4: Can compound interest work against me?
A: Yes, when borrowing money, compound interest can significantly increase your debt over time.

Q5: What's the best way to maximize compound interest?
A: Start early, invest regularly, choose investments with good returns, and let your money compound for as long as possible.