Compound Interest Calculator
Calculate the future value of your investment and the interest earned over time, illustrating the power of compounding.
Understanding the Power of Compounding
Compound interest is the interest earned on the original principal **and** on the accumulated interest from previous periods. This is often called "interest on interest," and it is the single most important factor in long-term wealth creation.
The Compound Interest Formula:
The formula used for calculating the Future Value (FV) with no periodic contributions is: $$FV = P \left(1 + \frac{r}{n}\right)^{nt}$$ Where:
- $P$ is the **Principal** (initial investment)
- $r$ is the **Annual Interest Rate** (as a decimal)
- $n$ is the **Compounding Frequency** per year
- $t$ is the **Time** in years
How Compounding Frequency Affects Returns
The more frequently interest is compounded ($n$), the higher the final future value. Daily compounding generally yields slightly more than monthly, and monthly yields more than annual compounding, illustrating why banks often advertise daily or continuous compounding.