1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It's a powerful concept in finance that allows investments to grow exponentially over time, commonly used in savings accounts and investments in the Philippines.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( P \) — Principal amount (initial investment in PHP)
• \( R \) — Monthly interest rate (annual rate divided by 12, as a decimal)
• \( N \) — Number of compounding periods (months)
• \( A \) — Final amount including interest (PHP)

Explanation: The formula accounts for exponential growth of your investment by applying interest to both the principal and accumulated interest.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning in the Philippines, helping savers and investors estimate how their money can grow over time in various financial products like time deposits, mutual funds, and retirement accounts.

4. Using the Calculator

Tips: Enter principal amount in PHP, annual interest rate in percentage, and the investment period in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest compounded in Philippine banks?
A: Most banks in the Philippines compound interest monthly, though some products may compound quarterly or annually.

Q2: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest.

Q3: Are there taxes on interest earnings in the Philippines?
A: Yes, interest income from bank deposits in the Philippines is subject to 20% final withholding tax.

Q4: What's a good interest rate for savings in the Philippines?
A: As of current rates, high-yield savings accounts offer 1-3% annually, while time deposits may offer 2-5% depending on term length.

Q5: How can I maximize compound interest?
A: Start early, invest regularly, choose higher-yielding (but safe) instruments, and reinvest your interest earnings.