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Compound Interest Formula:
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Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows your savings to grow faster over time as you earn interest on both your original investment and the interest it has already earned.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much your initial investment will grow over time with compound interest, showing the power of earning interest on your interest.
Details: Understanding compound interest is crucial for long-term financial planning, retirement savings, and investment strategies. It demonstrates how small, regular investments can grow significantly over time.
Tips: Enter the principal amount in pounds, interest rate as a percentage, and time period in years. All values must be positive numbers to get accurate results.
Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.
Q2: How often is interest typically compounded?
A: Interest can be compounded annually, semi-annually, quarterly, monthly, or daily. This calculator assumes annual compounding.
Q3: Can compound interest work against me?
A: Yes, when borrowing money, compound interest can significantly increase the amount you owe over time, especially with high-interest debt.
Q4: What's the Rule of 72?
A: The Rule of 72 is a quick way to estimate how long it takes for an investment to double: 72 divided by the interest rate gives the approximate years.
Q5: How can I maximize compound interest benefits?
A: Start investing early, contribute regularly, reinvest your earnings, and choose investments with competitive interest rates.