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