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Compound Interest Calculator
Investment Growth Summary
Compounding Power
The earlier and longer you invest, the greater the exponential effect of compound interest.
Harnessing the Power of Compound Interest
The **Compound Interest Calculator** is the most valuable tool for visualizing long-term **investment growth** and **savings growth**. It demonstrates how **compound interest**—interest earned on both the original principal and accumulated interest—creates exponential wealth over time. This tool calculates the **future value (FV)** of your investments, factoring in the initial **principal**, subsequent **annual contributions**, and the **compounding frequency**.
The Compound Interest Formula (Future Value)
The calculation combines two key formulas (lump sum + annuity) where $P$ = principal, $PMT$ = contribution, $r$ = rate, $n$ = compounding periods, and $t$ = time in years:
A higher **compounding frequency** (e.g., **daily compounding** versus annually) leads to a slightly higher **future value** due to interest being calculated on the principal more often. The result clearly separates your **total principal** from the **total interest earned**.
Savings Growth and Financial Planning
Use the **Compound Interest Calculator** for **financial planning**, setting realistic expectations for **savings growth** in retirement accounts or long-term investments. The difference between the **total future value** and the **total principal** highlights the substantial role of **interest earned** in long-term wealth creation. This tool is the foundation for understanding all other investment strategies.
Compound Interest FAQs
Time is the most important factor. Due to **compound interest**, the longer the investment **duration (years)**, the greater the final **future value (FV)**, as the interest itself starts earning more interest exponentially.
**Compounding frequency** is how often the earned **interest** is calculated and added back to the **principal**. Options like **daily compounding** (365 times per year) or **monthly** (12 times per year) usually result in a higher **future value (FV)** than annual compounding.
**Total Principal** is the total amount of money you physically put into the investment (initial principal + **annual contributions**). **Future Value (FV)** is the principal plus all the accumulated **total interest earned** from compounding over the duration.