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
Taking cue from other banks in India, HDFC too has gone on to increase MCLR rates by around 10 points to 15 points. The other banks that took the upward route include SBI, PNB, and ICICI Bank. As per the new rates, the MCLR rate stands at 8.30% for 1 year tenures as against the earlier 8.20%. For 2 year, 3 year tenures, the rate of interest is 8.45% and 8.60% respectively as against the earlier 8.30% and 8.50%. These rates are applicable and will be deemed effective from March 7, 2018. There is a possibility of lenders taking a look at the deposit and lending rates and make an alignment as per market conditions by the last quarter of the year. A majority of ‘key lenders’ in the private and public sector have increased rates and due to this the average consumer will have to shell out more money as the cost of loans will effectively increase. However, there is also a likelihood of fluctuations in interest rates and borrowers must be mentally prepared for the same.
One of the advantages of this trend is that interest rates of fixed deposits may take an upward trend.
8 March 2018
It is most likely that the Reserve Bank of India (RBI) will not make any changes as far as interest rates are concerned.
It is expected that when it comes to interest rates, changes may be unlikely till 2019, according to a Reuters. And regarding policy decisions, the bank may also tend to make ‘hawkish’ changes.
6 February 2018
The government bringing down the interest rates on small savings has drawn a lot of flak. This is because with the interest rates on FDs already down, the people of urban middle class have to look at other means to earn higher returns on their deposits. But does cutting down the interest rates makes any sense, let’s take a look. Market fundamentalists believe that the interest rates were needed to be cut on small savings keeping the monetary view as well as the fiscal burden on the government in mind. However, the reasons offered are not quite satisfactory when one takes a closer look at all the financial data of the last few years. With all the financial data showing that the interest cut on small savings are not needed, it is easy to comprehend that rates were deducted as part of the financial market populist demand.
11 January 2018
Year after year, banks and financial institutions keeps changing the rates that they offer its customers with regards to deposits and lending. Ever felt intrigued as to why it happens? Here are the factors that forces banking institutions to do so. The change in lending and deposit rates is largely because of the change in RBI’s repo rate as well as factors like inflation and economic growth. RBI’s Repo rate has a major saying as an increase or decrease in its rates inadvertently affects the customers. Other factors that plays an important role in the fluctuation of rates are inflation and the government’s earnings from sources like taxes. All in all, a variety of issues comes into the picture when it comes to an increase or decrease in the savings rate.
10 January 2018
With the rise in demand for loans, deposit rates are expected to rise in the coming months. According to the latest data released by the Reserve Bank of India, banks loans saw a rise of 10.7 percent as compared to 4.7 percent in the same period last year. However, deposits have seen a rise of only 4 percent in comparison to 14.7 percent in the same period. The data released by the premier bank of the country also highlights that banks have managed to muster only Rs. 4.1 lakh crore as fresh deposits in the last year. But loans taken in the same period have seen a rise of Rs. 7.8 lakh crore. With credit deposit ratio getting higher and investment deposit ratio falling, banks are already selling their excess holdings of government bonds to take care of loan demands. The data released shows that banks sold government bonds worth Rs. 2.6 lakh crore in the last year. Taking all this into consideration as well the prospect of inflation concerns, RBI may be forced to raise the rates which will ultimately result in higher deposit rates.
8 January 2018
In a good news for State Bank of India (SBI) customers, the bank has gone on to lower its base and benchmark prime lending rates (BPLR) by 30 basis points. This move is a welcome change and is said to benefit as many as 80 lakh customers. The base rate has been lowered to 8.65% from the earlier 8.95% and the BPLR has been decreased to 13.40% from 13.70%. The bank has not made any changes to the MCLR rate as yet. This rate is currently 7.95%. All the new rates will be effective from January 1, 2018.
1 January 2018
The Reserve Bank of India (RBI) may not change policy rates for the coming year 2018, according to a recent report that was published.
It is possible that a certain recovery growth can push members of the Monetary Policy Committee (MPC) to move towards a certain ‘tightening bias’. Many members of the MPC committee have voted to keep a pause as far as policy rate changes are concerned for the year 2018 due to the growth concerns that have been seen in the economy.
21 December 2017
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.
3 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%.
29 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.
26 November 2017
