1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It's often called "interest on interest" and makes money grow at a faster rate than simple interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

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

Explanation: The formula calculates how much your investment will grow when interest is compounded monthly.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning. It shows how investments grow over time and helps compare different investment options.

4. Using the Calculator

Tips: Enter principal amount in USD, annual interest rate in percentage, and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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 the principal plus accumulated interest.

Q2: How often is interest compounded in this calculator?
A: This calculator compounds interest monthly (12 times per year).

Q3: What's the benefit of more frequent compounding?
A: More frequent compounding leads to higher returns as interest is calculated on accumulated interest more often.

Q4: Can I use this for daily compounding?
A: No, this calculator is specifically for monthly compounding. The formula would be different for daily compounding.

Q5: How accurate is this calculator?
A: It provides accurate mathematical calculations, but actual investment returns may vary due to fees, taxes, and rate fluctuations.