Frequently Asked Questions
How is compound interest calculated?
Compound interest uses the formula A = P(1 + r/n)nt, where P is principal, r is annual rate, n is compounding frequency, and t is time in years. Our calculator adds monthly contributions for realistic projections.
Is compound interest better than simple interest?
Yes. Compound interest earns returns on both your initial investment AND accumulated interest, creating exponential growth. Simple interest only calculates on the principal amount.
How often should interest compound?
More frequent compounding (daily > monthly > annually) yields higher returns. This calculator uses monthly compounding, which is standard for most savings and investment accounts.
Can I use this for retirement planning?
Absolutely. Input your current savings, monthly contributions, expected return, and years until retirement to visualize your potential nest egg. Remember to adjust for inflation in long-term planning.
What’s a realistic annual return rate?
Historically, the S&P 500 averages ~7-10% annually (inflation-adjusted). Conservative estimates use 5-7%. Always consult a financial advisor for personalized guidance.