Use this calculator to determine the worth of your investment after some years if you earned a fixed rate of return on it.
A compound interest calculator is used to calculate the interest that will be earned on a certain sum of money that is put aside for investment. One can use different deposit intervals or compounding itervals to calculate the interest gained.
Compound interest is earned when the interest gained on a deposit amount is added to the principal, year on year, and, interest is calculated on this aggregate sum.
To put in simple words, compounded interest is the sum earned on the interest, along with the principal. This causes the principal amount to increase each year.
For example, if Rs.20,000 is invested for a period of 3 years. Here is how it will grow:
|Year||Balance||Interest @ 5%||Closing balance|
|2000||Rs.20,000||Rs.1,000||Rs.21,000 (Rs.20,000 + Rs.1,000)|
|2001||Rs.21,500||Rs.1,075||Rs.22,575 (Rs.21,500 + Rs.1,075)|
|2003||Rs.22,575||Rs.1,128.75||Rs.23,704 (Rs.22,575 + Rs.1,128.75)|
|Total interest earned =||Rs.3,203|
Opening Balance: Opening balance refers to the amount of money invested in a financial scheme. This amount is usually also referred to as the principal.
Compounding Interval: Compounding Interval is defined as the time interval during which compound interest is calculated.
Addition: This refers to the sum of money that the investor is planning to deposit on an annual, semi- annual, quarterly, bi-monthly, monthly, half-monthly, bi-weekly, weekly or daily basis.
Annual Interest Rate: The percentage of interest that is given for a year on a set sum of money is referred to as annual interest rate.
Total Deposits: This refers to the maximum number of deposits that are made towards a particular investment.
Interest Earned: The gain in sum on the principal amount or the money earned on the principal is referred to as interest earned.
Future Value: Future Value is nothing but the total value of the investment. This includes the interest earned along with the principal.
The compound interest formula is: A = P (1 + r/n) ^ nt
Where: A = amount after time t; P = principal amount (initial investment); r = annual nominal interest rate (as a decimal); n = number of times the interest is compounded per year; t = number of years.
The benefit of compound interest will be clear, when you can get a clear understanding from an example, let's say your investment Rs. 5, 000 and the rate of interest is 5% compounded monthly in this example. That makes the interest you earn Rs. 250 per year for 10 years plus your investment of Rs.5,000 which makes the investment balance after 10 years is Rs. 8,235.05.
Let's apply the formula:
A = P (1 + r/n) ^ nt
A= 5000 (1 + 0.05/12)^12(10)
Example for Compound Interest on yearly basis:
Let's take an investment of Rs. 1,00,000 with a rate of interest of 10% annually, for a term of 5 years. This example we'll use both the simple and compound interest formulas to show you the stark difference between them.
With the simple rate of interest you will use the following the formula P * R * T / 100 where P = principal amount (initial investment); r = annual nominal interest rate (as a decimal) t = number of years . Now using the example of Rs. 1,00,000 with a rate of interest of 10% annually, for a term of 5 years, the interest earned will be 1,00,000 * 0.10 * 5/100 = 50,000. Making your investment Rs. 1,50,000. But if you have an investment of the same amount earning you a compound interest instead of simple you will earn more, let's see how. Now let's use the compound interest formula which is:
A = P (1 + r/n) ^ nt
The interest for the first year with the investment of Rs.1,00,000 will be:
1,00,000*10/100 = Rs. 10,000
The interest for the second year with the investment of Rs.1,00,000 will be
1,00,000+10,000 = Rs. 1,10,000*10/100 = Rs. 11,000
The interest for the third year is with the investment of Rs.1,00,000 will be
1,00,000+10,000+11,000 = Rs. 1,21,000*10/100 = Rs. 12,100
The interest for the fourth year with the investment of Rs.1,00,000 will be
1,00,000+10,000+11,000+12,100 = Rs. 1,33,100 *10/100 = 13,310
The interest for the fifth year with the investment of Rs.1,00,000 will be
1,00,000+10,000+11,000+12,100+13,310 = Rs. 1,46,410*10/100 = Rs. 14,641
The total interest earned is
10,000 + 11,000 + 12,100 + 13, 310 + 14, 641 = 61,051
And making your total Rs. 1, 61, 051.
The simple interest to compound interest earnings is Rs. 50, 000 to 61, 051, an additional amount of Rs.11,051 in a term of 5 years.
Example for Compound Interest on daily basis:
In this case let' take an example of how a sum borrowed at compound interest will affect you borrowing.
Let's assume you borrow a sum of Rs. 2,00,000 and the rate of interest is 10% the daily compound interest is for a period of 5 years.
The formula used for this would be:
Principal (1+rate/365) 365*time - Principal = 2,00,000 (1+10/100*365) 5*365 - 2,00,000
= 2,00,000 * 1.649 - 2,00,000
The interest for 5 years that's compounded daily is: Rs. 1,29,800
The total amount repayable will be 2,00,000 + 1, 29,800 = Rs. 3, 29,800
An extra amount of Rs. 1, 29,800 as interest is payable.
Example for Compound Interest on monthly basis:
As an example, let's use a credit card for the monthly compound interest calculation. Say you get a credit card from XYZ Bank, and the rate of interest charged is 12.49% that's compounded monthly for its customers. With the first swipe of your credit card you max you limit of Rs. 1, 20, 000. After which you have not made new purchases nor have you made any payments. What do you think the amount will be that you need to pay, towards your credit card with XYZ Bank?
The formula for this will A = Principal (1 + rate/n) (nt)
Principal = amount swiped,
Rate = 12.49%,
n= number of time interest is compounded
t=time in years.
So this will be
A = 1,20,000 (.1249/12) 12*0.5
= 1,27,494 the total amount payable towards your credit card with XYZ Bank.
No, most of the compound interest calculators are free.
A. Yes, the online compound interest calculator will allow you to choose the amount, rate of interest and time period to calculate the compound interest. Based on your input the calculation will take place.
When you invest an amount into a savings scheme, giving your investment the same rate of interest of 10% and you can invest it under either a simple or compound interest scheme. The preferred choice will be compound interest. The earnings on this investment will be more with the interest compounded.
Let's say the investment Rs. 1,00,000 with a rate of interest of 10% annually, for a term of 5 years.
The simple interest earned will be 1,00,000 * 0.10 * 5/100 = 50,000. Making your investment Rs.1,50,000.
But if you have an investment of the same amount earning you a compound interest instead of simple you will earn Rs. 1, 61, 051 with the total interest earned for a period of 5 years Rs. 61,051. And making your total Rs. 11, 051 more.
Simple interest rate formula: P * R * T / 100 and for compound interest rate formula: A
A = P (1 + r/n) ^ nt
The Monetary Policy Committee (MPC) is likely to have a meeting and make a decision on the Repo rates based on the inflation concerns in the economy at present.
It has been noted that the Reserve Bank of India (RBI) will make an announcement in this regard after the meeting has been held on December 6. It is unlikely that rates will be changed.
The RBI will reiterate its standing in this regard and take a stand on systematic liquidity closer and other Repo related matters.
3rd December 2017
The State Bank of India (SBI) has increased the interest rate offered on a wide range of deposits by 1%. These new rates will be effective from November 30, 2017.
The new interest rates will be applicable on all deposits of less than Rs.1 crore. The interest rate offered on deposits held from 7 days to 45 days has been raised from 3.75% to 4.75% and the rate of interest paid for deposits held from 5 to 10 years has been increased from 4.25% to 5.25%.
29th November 2017
The Employee’s Provident Fund Organisation (EPFO) is likely to pay lesser interest on PF deposits this fiscal, when compared to the figure for 2016-17, when the rate of interest was 8.65%. This information was released by a labour ministry official.
This is because the EPFO has already been crediting Exchange Trade Funds (ETF) units to PF deposit accounts. A senior official from the organisation said that EPFO will pay a lesser rate of interest for all PF deposits in 2017-18 because there has been a comparatively lower income earned on bonds.
26th November 2017
HDFC Bank recently announced that there has been a pause as far as interest rate change is concerned for deposits as well as lending. Banks have put things on hold for the time being.
This is because of excess liquidity being drained out from the banking system. There may be a lower incidence of deposit and lending rates falling, at least for some time now. This is because interest rates have already bottomed out considerably for now. Therefore, there might be a pause as far as interest rate is concerned for at least some time now, which means a short-term period.
In light of the festival season in India, many banks gave out loans at a lesser rate of interest. On the other hand, the Reserve Bank of India (RBI) is likely to put forward its 5th bi-monthly policy in the coming month.
26th November 2017
The share prices of insurance companies such as HDFC Standard Life, ICICI, MAX Life and SBI came down by 3% to 6%. With this move, the tax rate for insurance companies will go up to corporate tax levels.
A new task force has been formed to draft tax laws, especially those concerning direct tax. These may cause changes in two aspects:
23rd November 2017
SBI Life is likely to reduce the premium prices on various term plans that it offers by December 2017. The reason behind this move is the company’s ambition to increase profit ratios in the insurance market. The changes in pricing will be made to term products such as ‘Smart shield’ and ‘Salral shield’. This announcement was made by the Managing Director and CEO of the company recently at an event. SBI Life is still yet to decide how much to cut and this figure will be finalised in the coming days.
22nd November 2017