1. What is the Compound Interest Formula?

The Bankrate compound interest formula calculates how much your savings will grow over time when interest is compounded periodically. It shows the power of compounding, where you earn interest on both your initial principal and accumulated interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of investment
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of times interest is compounded per year
• \( t \) — Time the money is invested for (years)

Explanation: The formula accounts for periodic compounding, which accelerates growth compared to simple interest.

3. Importance of Compound Interest

Details: Compound interest is fundamental to long-term savings growth. Even small differences in rate or compounding frequency can significantly impact final amounts over decades.

4. Using the Calculator

Tips: Enter principal in USD, annual rate as percentage (e.g., 5 for 5%), compounding frequency (12 for monthly), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the annual rate without compounding, while APY includes compounding effects. This calculator shows APY-like results.

Q2: How often do banks typically compound interest?
A: Most savings accounts compound daily or monthly, while CDs may compound quarterly or annually.

Q3: Why does compounding frequency matter?
A: More frequent compounding leads to slightly higher returns, as interest is calculated on more recent balances.

Q4: Can I use this for investments other than savings?
A: Yes, it works for any investment with fixed periodic returns, though most investments have variable returns.

Q5: How accurate is this for real-world savings?
A: It's accurate for fixed-rate accounts, but real returns may vary with rate changes, fees, or taxes.