Use this calculator to determine the worth of your investment after some years if you earned a fixed rate of return on it.
Use a calculator to know how much compound interest you will earn out of your investment, like a Fixed Deposit (FD) for example, if you are planning to apply for a term deposit. A compound interest calculator is a tool through which compound interest can be calculated online. Compound interest calculation can be done for different tenures and interest payout frequencies such as daily, monthly, quarterly, half-yearly or yearly. Understand the power of compound interest and see how it will help grow your investment by using an online compound interest calculator. In this write up we explore more about what is compound interest, how it benefits an investor, how you can use a compound interest calculator and much more. Read on further for more details.
Compound interest, also known as compounding interest, is accumulated interest that is added to the principal amount invested to calculate the interest on a deposit. In simple words, compound interest is the ‘interest earned on interest’. This simply means that compound interest is earned on the principal plus the interest earned. The principal basically increases every year or depending on how frequently compound interest is calculated .
Let us look at an example to better understand the concept of compound better:
The below table illustrates how interest is earned when the interest is compounded.
Principal | Year | Interest earned |
---|---|---|
Rs.50,000 | 1 | Rs.5000 |
(Rs.50,000 + Rs.5000) Rs.55,000 | 2 | Rs.5,550 |
(Rs.55,000 + Rs.6055) Rs.60,550 | 3 | Rs.6055 |
(Rs.60,550 +Rs.6055) Rs.66,605 | 4 | Rs.6,660.5 |
(Rs.66,605 + Rs.6,660.5) Rs.73,265.5 | 5 | Rs.7,326.55 |
A compound interest calculator allows an investor to know how much interest he/she will earn for different interest computation frequencies. This may be on a daily, monthly, quarterly, half-yearly, or yearly basis. The interest compounding frequency makes a difference in the total interest that is earned on any type of deposit. To understand this better, let us take a look at an example:
Refer to the below table to understand how different interest compounding frequencies affect interest rate:
Compounding frequency | Principal amount | Interest earned |
---|---|---|
Monthly | Rs.10,000 | Rs.656 |
Quarterly | Rs.10,000 | Rs.660 |
Yearly | Rs.10,000 | Rs.677 |
Compounding Frequencies
Compound interest can be calculated using various online tools like a compound interest calculator for example. To do this calculation you need the following information:
You can use the BankBazaar compound interest calculator to know the total interest that will earned on a particular investment. All you need to do is to choose the investment amount, the interest rate and the time period for which you are putting in your money.
The compound interest formula is: A = P (1 + r/n) ^ nt
A compound interest calculator is a tool that is used to calculate the total interest that will be earned on an investment. This tool is very convenient and easy to use and gives consumers the actual rate of return on an investment. This will help any prospective investor see how compound interest will grow their money. The tool is also advantageous because an investor can make a decision on how much he/she has to invest in order to reach a financial/investment goal. There are a number of benefits of using a compound interest calculator, let us understand some of them.
Benefits of compound interest calculator:
If you want to estimate the exact yield of your investment for a particular tenure, use the BankBazaar online compound interest calculator. The calculator is customized to cater to all types of investors. So, any amount can be selected along with the tenure and interest rate.
Read more about : Fixed Deposit Calculator
So what is the difference between compound interest and simple interest? When it comes to simple interest, a certain fixed percentage of interest is paid for a certain tenure. Here the principal remains the same each year. However, in the case of compound interest the principal keeps increasing because the interest earned is added back to the principal. Let us take a look at the differences:
Let us understand more about the differences between simple and compound interest by using a comparison table below:
Comparison | Simple interest | Compound interest |
---|---|---|
Definition/meaning | Simple interest is a type of interest calculation method where interest is computed based on the same principal amount. | When it comes to compound interest, the calculation of interest is made on accrued interest. |
Example | If you deposit Rs.3000 at 5% interest rate for 3 years, the total interest earned will be Rs.150. | If you deposit the same Rs.3000 at 5% interest rate for 3 years, the total interest earned will be Rs.157.625 |
Earnings/return earned | Lesser returns | More returns |
Growth | Steady growth | Growth potential increases at a fast pace |
Principal amount | Remains the same | Changes (Principal = previous year’s principal + interest) |
Future value is nothing but the total value of an investment after the said maturity period.
Compounding interval or frequency refers to the time interval during when compound interest is calculated.
This depends from investment to investment. It is different for savings account, term deposits and other types of investments. For example, in a fixed deposit, an investor can choose different interest compounding frequencies such as monthly, quarterly, half-yearly or annually.
Effective annual rate is the total return that you will earn from an investment. This yield will be higher than the interest rate because of the power of compounding interest.
How will I know if I am earning compound interest on my investment?
Contact your bank or financial institution through which you are making an investment.
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