Compound Interest Calculator
How does this Compound Interest Calculator work?
A compound interest calculator is a useful tool for determining the future value of an investment over time. It takes into account several factors such as the principal or start amount, annual interest rate, compound frequency, years of growth, payment, and payment frequency. Here’s how it works:- Principal or Start Amount: This is the initial amount of money that you invest. It is the starting point for calculating the future value of your investment.
- Annual Interest Rate: This is the rate at which your investment grows each year. It is expressed as a percentage of the principal amount.
- Compound Frequency: This is the number of times per year that the interest on your investment is calculated and added to the principal. For example, if the compound frequency is quarterly, then the interest is calculated and added to the principal every three months.
- Years of Growth: This is the length of time that your investment will grow. The longer the investment period, the greater the potential for growth.
- Payment: This is the amount of money that you contribute to your investment on a regular basis. It can be a fixed or variable amount.
- Payment Frequency: This is the frequency at which you make payments to your investment. It can be weekly, monthly, quarterly, or annually.
FV = P(1 + r/n)^(nt) + PMT((1 + r/n)^(nt) – 1)/(r/n)
Where: FV = Future Value P = Principal or Start Amount r = Annual Interest Rate n = Compound Frequency t = Years of Growth PMT = Payment The first part of the formula(P(1 + r/n)^(nt))
calculates the future value of the principal, while the second part of the formula(PMT((1 + r/n)^(nt) – 1)/(r/n))
calculates the future value of the payments made to the investment. The compound interest calculator takes all of these inputs and calculates the future value of your investment, total payments made, and total interest earned. It provides you with a clear picture of how your investment will grow over time and helps you make informed decisions about your financial future.