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Compound Interest

Equations

Compound Interest Formula

The calculator uses the compound interest formula to calculate the future value of the investment or loan. 


A = P x (1+r/n)nt


Where:

A = Future value of the investment/loan, including interest.

P = Principal investment amount (initial deposit or loan amount).

r = Annual interest rate (decimal).

n = Number of times interest is compounded per year.

t = Time the money is invested or borrowed for, in years.



Detailed Calculation with Monthly Contributions

The future value of the investment with monthly contributions can be calculated using the formula:


A = P(1+r/n)nt  + C(r/n(1+r/n)nt−1)

What is a

Compound Interest Calculator

A compound interest calculator is a financial tool used to estimate the future value of an investment or loan based on the principal amount, interest rate, duration, and frequency of compounding. 


Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

How to use the 

Compound Interest Calculator

Enter Initial Investment:Input the initial amount of money you are investing or have as a principal in the "Initial Investment (GBP)" field


Enter Interest Rate:Input the annual interest rate as a percentage in the "Annual Interest Rate (%)" field.


Enter Duration of Investment:Input the total duration of the investment in years in the "Duration of Investment (Years)" field.


Enter Monthly Contribution (Optional):Input the amount of money you will contribute to the investment each month in the "Monthly Contribution (GBP)" field. This is optional and can be left blank if there are no monthly contributions.


Select Compounding Interval: Choose how often the interest is compounded from the dropdown menu. The results will be displayed below the "Calculate" button. 


Calculate: Click the "Calculate" button to compute the future value of the investment and the interest earned over the specified period.


Review Results: The output will show

Future Investment Value: The total value of the investment at the end of the specified period, including both the initial investment and the interest earned.


Interest Earned: The total interest earned over the specified period.

Components of a Compound Interest Calculator


  1. Principal Amount:The initial amount of money invested or loaned.

  2. Annual Interest Rate:The yearly interest rate, expressed as a percentage.

  3. Duration of Investment:The time period for which the money is invested or borrowed, usually in years.

  4. Compounding Frequency:How often the interest is calculated and added to the principal balance. Common compounding intervals include annually, semi-annually, quarterly, monthly, and daily.

  5. Monthly Contributions (Optional):Regular monthly additions to the principal amount.


Benefits of Using a Compound Interest Calculator
  1. Accuracy:Provides precise estimates of the future value of an investment or loan based on the given parameters.

  2. Financial Planning:Helps in making informed decisions about savings, investments, and loans.

  3. Visualization:Shows how different interest rates, compounding frequencies, and durations affect the future value.

  4. Convenience:Saves time and effort in manual calculations and provides instant results.


How a Compound Interest Calculator Works


The calculator uses the compound interest formula to calculate the future value of the investment or loan. The formula is:

𝐴=𝑃(1+𝑟𝑛)𝑛𝑡A=P(1+nr)nt

Where:

  • 𝐴A = Future value of the investment/loan, including interest.

  • 𝑃P = Principal investment amount (initial deposit or loan amount).

  • 𝑟r = Annual interest rate (decimal).

  • 𝑛n = Number of times interest is compounded per year.

  • 𝑡t = Time the money is invested or borrowed for, in years.

If there are monthly contributions, the formula adjusts to account for the additional periodic contributions.

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