Compound interest calculator

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What is compound interest?

Compound interest is a financial concept that involves the process of earning interest not only on the initial principal amount, but also on any interest previously earned. In other words, it's "interest on interest." The key idea is that the interest you earn is reinvested or added back to the original principal, and subsequent interest calculations are based on this new, larger amount.

Is that how it works:

• Initial Principal: You start with an initial amount of money, known as the principal.
• Interest Earned: Over time, you earn interest on this principal amount. This interest may be calculated periodically (for example, annually, monthly, daily) depending on the terms of the investment or loan.
• Added Interest: Instead of withdrawing interest, it is added to the original principal. Therefore, the principal grows.
• Future Interest Calculation: Future interest calculations are based on the new largest principal amount, which includes previously earned interest.

This compounding effect can lead to exponential growth in the value of your savings or investments over time. It is often used in savings accounts, investment accounts, and loans.

Compound interest is a powerful concept for building long-term wealth because it allows your money to grow faster than simple interest, where interest is calculated only on the initial principal. Over a sustained period, compound interest can significantly increase the value of your savings or investments, becoming a valuable tool for achieving financial goals.