Compound Interest Calculator
What is Compound Interest?
Compound interest is the interest on a loan or deposit that is calculated based on both the initial principal and the accumulated interest from previous periods. This means that interest is earned on interest, which leads to exponential growth over time.
The formula for compound interest is:
A=P(1+r/n)nt
Where:
- A = The final amount (Principal + Interest)
- P = The principal amount (initial investment or loan)
- r = The annual interest rate (decimal)
- n = The number of times the interest is compounded per year
- t = The number of years the money is invested or borrowed for
Simple Interest vs. Compound Interest
Most savings and loans use compound interest, which adds interest to the principal over time. However, simple interest with our simple interest calculator is easier to calculate and is often used for:
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Formula | A = P(1 + rt) | A = P(1 + r/n)^(nt) |
| Growth | Linear | Exponential |
| Common Use | Short-term loans, personal finance | Savings accounts, mortgages, investments |