# Compound interest calculator

# Compound interest calculator

**To calculate compound interest, you can use the following formula:**

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

**where:**

A = the final amount after n years (including principal and interest) P = the principal (the initial amount invested) r = the annual interest rate (as a decimal) n = the number of times the interest is compounded per year t = the number of years the money is invested

**To use this formula in a calculator, follow these steps:**

- Determine the values of P, r, n, and t.
- Divide the annual interest rate by the number of times the interest is compounded per year to get the periodic interest rate (r/n).
- Multiply the number of times the interest is compounded per year by the number of years the money is invested to get the total number of compounding periods (nt).
- Substitute these values into the formula and solve for A.

Alternatively, you can use an online compound interest calculator, which will do the calculation for you automatically. Simply enter the values of P, r, n, and t, and the calculator will provide the final amount (A) after the specified number of years. Some calculators may also allow you to enter additional parameters, such as regular contributions or withdrawals, to provide a more accurate estimate of the total amount of interest earned over time.

## Compound interest

Compound interest is the interest that is earned not only on the principal amount of an investment but also on any accumulated interest. This means that as interest is added to the principal, the total amount of money invested grows, and the amount of interest earned in subsequent periods also increases. This can lead to exponential growth in the value of the investment over time.

For example, if you invest $1,000 in a savings account that pays 5% interest compounded annually, at the end of the first year, you will earn $50 in interest, bringing the total value of the investment to $1,050. In the second year, you will earn interest on the new total amount of $1,050, which will be $52.50 (5% of $1,050), bringing the total value of the investment to $1,102.50. Over time, this compounding effect can significantly increase the value of the investment.

It’s important to note that while compound interest can work to your advantage when investing, it can also work against you when borrowing money. When you borrow money with interest, the interest accumulates on the outstanding balance, which means that over time, you may end up paying much more in interest than you initially borrowed.