Because of its ease of calculation, many prefer simple interest over compound interest. But if you are an investor, you know that compound interest gives more return as compared to simple interest.
What is a Compound Interest Calculator?
A compound interest calculator is a tool that lets you see how your money can grow using interest compounding. You can calculate compound interest on an investment, 401K, or savings account with annual, quarterly, daily, or continuous compounding.
What is compound interest?
Compound interest (also known as compounding interest) is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
There is a standard formula to use when calculating compound interest. This is the same formula used by our compound interest calculator.
Compound interest formula
The standard formula for calculating compound interest is:
P1 = P (1+r/n) nt
P1 = new principal amount
P= original principal amount
r= rate of interest
n= compounding frequency
t= total time the interest will be charged
Then, the compound interest calculator calculates the compound interest as the final value minus the original principal amount.
It is crucial to remind that compound interest has a hugely beneficial impact on investment. The theory you need to understand is that compound interest happens when we add up the earned interest to the initial deposit or the principal, which leads to interest gaining interest. Institutions dealing with finance usually provide compound calculations on the various investments, regularly compounding mostly annually or monthly.
The compounding interest would increase investments with no additional deposits, although one might do more deposits over time, expanding the efficiency of compound interest.
The compound interest calculator has many numbers of attributes than most. One could vary the compounding and deposit intervals from a daily to an annual basis (and all else in between).
Such adaptability permits a person to calculate and compare the interest earnings anticipated regarding the varied situations of an investment. Hence, one could understand that an 8% rate of compounds daily is much better than a 9% rate of compounds annually.
It is easy to use this compound interest calculator. However, we advise you to consider the results from these calculators only as estimates. Remember that changing compounding intervals and deposits lead to complex equations.
Compound interest benefits
- You will earn interest on the interest and the principal amount you invested.
- Faster growth of your investment.
Do you have any questions about the compound interest calculator? Consider talking with an expert at our office to get the answer you need.