Compound Interest Calculator

How to Use the Compound Interest Calculator

Enter the initial investment in the corresponding field.

• Enter the initial investment in the corresponding field.
• Next, enter the monthly contribution. Remember that this field is optional.
• Now, enter the interest rate. If the period is not monthly, change it to the annual option.
• Determine the period for which you plan to keep the investment.
• Finally, click on 'calculate compound interest' to get the result of your simulation.

As an example, consider the following parameters: an initial investment of $5,000, with an additional $500 invested monthly for 2 years, and an annual interest rate of 10%.

What is Compound Interest?

Compound interest is a way to calculate investment growth over time, where interest is applied not only to the initial amount invested but also to the previously accumulated interest.

What is the Compound Interest Formula?

The compound interest formula is A = P (1 + i) ^ t. To better understand the formula, let's define each variable: A = final amount, that is, the resulting value; P = initial amount invested; i = interest rate; t = investment time period.

Practical Example of Compound Interest

Imagine you have $1,000 invested with an annual interest rate of 10%. At the end of the first year, you will have $1,100. In the second year, this 10% rate will be applied not only to the initial amount of $1,000 but to the new amount of $1,100, resulting in a total of $1,210.

Difference Between Simple Interest and Compound Interest

While simple interest is calculated only on the initial investment, compound interest takes into account not only the initial amount but also the accumulated interest over time.

Conclusion

Compound interest is a powerful tool for growing wealth over time. By understanding how it works and applying it to your investments, you can achieve your financial goals faster and more efficiently.

Frequently Asked Questions

What is Compound Interest?

Compound interest is a way to calculate the growth of an investment over time, where interest is applied not only to the initial amount invested but also to the previously accumulated interest.

What is the Compound Interest Formula?

The compound interest formula is A = P (1 + i) ^ t, where A is the final amount, P is the initial amount invested, i is the interest rate, and t is the investment time period.

How Does Compound Interest Work in Practice?

Compound interest exponentially multiplies gains each period, resulting in significant growth of the investment value over time. The longer the money is left invested, the greater the impact of interest on wealth.

What is the Difference Between Simple Interest and Compound Interest?

While simple interest is calculated only on the initial investment, compound interest takes into account not only the initial amount but also the accumulated interest over time, resulting in even greater gains each period.

Where is Compound Interest Applied?

Compound interest is widely used in various types of investments, including fixed income, variable income, real estate funds, stocks, financing, and loans.