Compound interest calculator
Best compound interest calculator online
Understand how interest grows exponentially
Total amount
₹1,33,823
Principal Amount
Rate of interest (p.a)
Time period
Your interest
0.0%
Principal Amount
Total Interest
*This amount is calculated on 6% p.a. for the span of 5 yrs.
Principal Amount
₹1,00,000
Total Interest
₹33,823
Total Amount
₹1,33,823
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Univest PRO
₹371293
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₹133822
What is compound interest calculator?
Compound Interest is the interest earned on both, the principal amount as well as the amount of interest accumulated over time. Owing to this benefit of compounding, even small contributions made on a regular basis can accumulate wealth if invested for a longer duration.
Compound interest holds substantial importance in the context of financial planning too. This is because it helps individuals be aware of the power of compounding, thus encouraging them to make well-informed and intelligent investment decisions.
Understanding compound interest
Compound Interest refers to the interest earned on the total amount of principal invested, inclusive of the amount of interest accumulated previously. In simpler terms, the principal amount increases each time the compounding is done because interest already earned will be added to it. This process is known as compounding and significantly fastens the process of wealth accumulation.
Compound interest is also known as ‘Interest on Interest’ or ‘Interest earned on the Interest itself’.
The formula for calculating compound interest on your investment is as follows:
CI = P (1 + r/n) ^ nt
In the formula,
CI= Compound Interest
P= Amount of Initial Investment (Principal amount)
R= Annual rate of interest
n= Frequency of interest compounding
t= Number of years or Tenure of Investment
Let’s understand Compound Interest calculation with the help of an example.
Mr Kavish invests INR 10,000 at the rate of 10% per annum for a duration of five years. The compounding frequency is half-yearly.
Investment (Principal Amount): Rs. 10,000
Annual Rate of Interest: 10% per annum
Tenure of Investment: 5 years
Compounding of Interest is done on a half-yearly basis.
Compound Interest = 10,000*[(1+0.10/2)^(5*2) -1]
Compound Interest = 10,000*[(1+0.05)^10 -1]
Therefore, the Compound Interest calculated using the above steps is Rs. 6288.9.
Thus, the investment of Rs. 10,000 is worth Rs. 16288.9 after 5 years at 10% p.a. with half yearly compounding.
Compound interest calculator
Compound Interest Calculator is an online financial tool that assists in the calculation of compound interest on investments made. Manual calculations of Compound Interest require a lot of time and effort as the principal amount will keep changing after every compounding. This makes the entire process lengthy. Additionally, the chances of errors while doing manual calculations are also higher.
To address these issues, an Online Compound Interest Calculator becomes beneficial. One needs to input only a few details to calculate the compound interest on the investment made, which includes the principal amount of investment, rate of interest, frequency of compounding and total tenure of the investment (in years). The calculator helps get a better idea about the principal amount and the tenure requirements in case of a pre-decided target corpus.
How to use the compound interest calculator?
Using an Online Compound Interest Calculator is simple. Here’s a guide for you to make use of it:
- Open a Compound Interest Calculator online, either on your mobile or laptop.
- Input the principal amount, that is, the initial investment you want to make.
- Enter an accurate annual rate of interest in percentage terms.
- Select the frequency of compounding, that is, the number of times you want the interest to be compounded. The frequency may be daily, monthly, quarterly, semi-annually or annually.
- Set the total number of years you want to invest.
- Once all the required details have been entered, click ‘Calculate/Proceed’.
By following these steps, you can easily calculate the compound interest using an Online Compound Interest Calculator.
Benefits of using a compound interest calculator
- Estimation of the Returns: As the name suggests, the primary advantage of using a Compound Interest Calculator is that it allows investors to estimate the potential returns they can earn from their investments. This assists in informed investment decision-making so that individuals can align their financial goals accordingly.
- User-Friendly Interface: Only a few details are required as input to determine the Compound Interest, such as the amount of initial investment, rate of return, frequency of compounding and the tenure of investment. This makes the interface easy to use as there are no technical terms required, thus enabling all individuals to make use of it.
- Comparison of multiple scenarios: Online compound interest calculators allow investors to compare the various scenarios of their investment plans by tweaking principal amounts, frequency of compounding or even tenure of investment, thus helping them to make appropriate choices based on their goals and convenience.
- Reliable and Convenient:The online compound interest calculators are a reliable source to determine the returns of investments, along with the utmost convenience provided to users.
Impact of different compounding frequencies
Compounding frequencies are directly proportional to the returns earned on an investment. The higher the compounding frequency, the higher the returns on investment.
When compounding is done on a yearly basis, interest is compounded only once a year.
In the case of monthly compounding, the interest is compounded 12 times a year, that is, once every month. Monthly compounding provides better returns as compared to yearly compounding.
In the case of daily compounding, the interest is compounded every day for the entire year. Due to this, the principal amount increases each day, thus leading to higher returns.
Overview of compound interest investments
There are various compound interest investments available. Some of them are:
- Fixed Deposit :Fixed Deposits involve a lump sum investment made for a fixed tenure. It is a popular investment alternative with compound interest.
- Certificates of deposit (CDs) :Certificates of Deposits are compound interest investments with low levels of risk involved. CDs offer higher interest rates as compared to a regular savings account and the interest payments are given at regular intervals. The duration of an investment in Certificates of Deposit usually ranges from three months to five years.
- High-yield savings accounts:High-yield savings accounts usually don’t have a minimum balance requirement and can offer good returns. However, the returns offered might not be sufficient to provide a hedge against inflation.
- Bonds and bond funds:Bonds are considered to be an amazing compounding interest investment. They are usually beneficial for the long term and offer high yield, but are riskier as compared to Certificate of Deposit.
Comparative analysis: difference between compound interest and simple interest
- Interest Charged: The interest is charged on the principal amount in the case of simple interest, whereas in the case of compound interest, interest is charged on the total amount of principal invested as well as the interest accumulated previously.
- Investment Returns: The returns earned from simple interest are much lower as compared to those earned from compound interest investments.
- Variation in Principal Amount: The amount of Principal invested remains constant in Simple Interest calculations. However, it is variable throughout the tenure of the Compound Interest Investments.
- Growth Prospects: The growth prospects of the funds invested are uniform and less in the case of simple interest. On the other hand, the growth of compound interest investments is rapid.
Advantages of compound interest over simple interest
Since Compound Interest is a widely used tool in financial planning, it offers several benefits over simple interest calculation. Some of these advantages are mentioned below:
- Exponential Growth of Returns: The foremost advantage of Compound Interest from a long-term perspective is that an investor can exponentially grow his wealth due to the benefit of compounding. In simpler terms, ‘Benefit of Compounding’ means that the interest earned from the principal amount is reinvested and added to the initial investment, which increases the principal amount of investment, thus leading to higher future potential returns.
- Incentive to Investors: The compound interest provides a consistent saving incentive to investors. Since even smaller contributions grow over time, investors feel secure due to the regular incentives earned on their investments.
- Long-term perspective: Compound interest is favourable for investors with a longer-term perspective. Investors who are willing to invest for extended periods benefit the most from this tool.
- Promotes early investing: Awareness of compound interest encourages early financial planning among individuals. People are more likely to start their future planning when they understand the impact of a greater time horizon on the growth of investments.
- Goal-based investment habits: Compound Interest encourages people to start their investment journey towards their future goals like retirement planning, saving for children’s education or marriage, etc.
Conclusion
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FAQs
What is Compound Interest?
How is Compound Interest Calculated?
Compound interest can be calculated by using the below-mentioned formula:
CI = P (1 + r/n) ^ nt
Where CI= Compound Interest
P= Amount of Initial Investment (Principal amount)
R= Annual rate of interest
n= frequency of compounding
t= Number of years
What are the Benefits of Compound Interest?
How Does Compounding Frequency Affect My Returns?
What's the Difference Between Simple Interest and Compound Interest?