Our Compound Interest Calculator is a Powerful Tool designed to help you understand Investments and returns. It includes initial principal, interest rate, compounding frequency, and investment timeline, making it user-friendly and accurate in estimating your potential earnings.
What is Compound Interest?
Compound Interest is the interest an Investor Earns on his original investment plus all the interest earned on the Interest that has accumulated over time. It is easier to understand compound interest as Interest on Interest.
To Understand the power of compound interest we need to understand the simple interest first. In Simple Interest, you earn interest on the principal amount only.
Suppose you invested ₹10,000 in a high-interest bank saving account that yields 5% interest annually for 3 years. So, Each year you will receive ₹500 interest and for 3 years it will be ₹1500.
The same amount if invested in a compound interest scheme will yield ₹500 interest in 1st year, 5% of 10500 = ₹525 in 2nd year, and 5% of (10500 + 525) = ₹551.25 in 3rd year. Hence, total interest will be ₹1576.25 which is ₹76.25 higher than simple interest just in a period of 3 years.
| Years Span | Simple Interest(5% Annually) | Compound Interest(5% Annually) |
|---|---|---|
|
1st Year |
5% of 100000 = 5000 (105000) |
5% of 100000 = 5000 (105000) |
|
2nd Year |
5% of 100000 = 5000 (101000) |
5% of 105000 = 5250(110250)
|
|
3rd Year |
5% of 100000 = 5000 (115000) |
5% of 110250 = 5512.5(115762.5) |
|
4th Year |
5% of 100000 = 5000 (120000) |
5% of 115762.5 = 5788.125(121550.625) |
|
5th Year |
5% of 100000 = 5000 (125000) |
5% of 121550.625 = 6077.5(127,628.15) |
|
Total Returns |
25,000 |
27,628.125 |
What is the Formula to Calculate Compound Interest?
CI = PA * (1 + R/F)^(F*T)
CI = Compound Interest
PA = Principal Amount Invested
R = Rate of Interest
F = Frequency i.e. how many times in a year
T = Time(No. of Years)
How a Compound Interest Calculator Help You?
- Investment Growth Projection: The Compound Interest Calculator can help you understand and visualize the returns for long-term investments.
- Retirement Planning: It can help you understand your savings and expected returns on investment to plan retirement goals and plans.
- Comparison with various Investment options: It can help you analyze various investment options available based on returns.
- Goal Settings: It enables realistic financial goals to be set by showing how much to save regularly to reach a specific target amount.
How to use Our Compound Interest Calculator?
To Use our Compound Interest Calculator Fill in your Investment Details and Time Period:
- Principal Amount: Enter the Principal Amount that you have Invested.
- Annual Interest Rate: Expected Rate of Interest
- Time Period: For How many Years you remain invested?
- Compound Frequency: How Frequently your investment gets compounded. By default, it is yearly but if you want to switch it semi-annually or quarterly you can open the dropdown and select it from the dropdown.
- Once you have entered all the details click on the Calculate button to see the returns. Final Amount and Interest Earned will be displayed below the button, you can also see it visually on the chart on the right-hand side.