1. What is the Compound Interest Formula?

The compound interest formula calculates the future value of regular monthly investments, accounting for interest earned on both the principal and accumulated interest. This formula is essential for retirement planning and long-term savings strategies.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of the investment (USD)
• \( PMT \) — Monthly payment amount (USD)
• \( r \) — Annual interest rate (as a decimal)
• \( t \) — Time period in years

Explanation: The formula accounts for monthly compounding by dividing the annual rate by 12 and multiplying the time period by 12 months.

3. Importance of Compound Interest

Details: Compound interest is a powerful force in investing. Over long periods, it can significantly multiply the value of regular investments due to earning interest on previously earned interest.

4. Using the Calculator

Tips: Enter monthly payment in USD, annual interest rate as a percentage (e.g., 5 for 5%), and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest compounded in this formula?
A: The formula assumes monthly compounding, which is common for many investment accounts.

Q2: Does this account for inflation?
A: No, the results are nominal values. For real (inflation-adjusted) returns, subtract expected inflation from the interest rate.

Q3: What's the difference between this and simple interest?
A: Simple interest only earns on the principal, while compound interest earns on both principal and accumulated interest.

Q4: How accurate is this calculator for real-world investments?
A: It provides a good estimate, but actual returns may vary due to market fluctuations, fees, and changing interest rates.

Q5: Can I use this for debt calculations?
A: While the math is similar, this formula is designed for investments growing in value. Debt typically uses amortization formulas.