compound interest calculator

how to calculate compound interest?

compound interest is the “interest on interest.” unlike simple interest, it also takes into account the interest earned by the investor to date.

here is the compound interest formula –

p * (1 + i)n – p

where,

p – principal amount

i – rate of interest

n – compounding intervals

for example,

mr xy invested rs. 1,00,000 bearing an interest rate of 12% that compounds monthly. what would be his interest for the entire year?

solution:

in this case,

p – rs. 1,00,000

i – 12%/12 = 1%

n – 12 times

compound interest – ₹1,00,000 * (1 + 0.01)12 – ₹1,00,000 = ₹12,680

so, mr. xy earned ₹12,680 for the entire year by investing ₹10,0000.

how to use a compound interest calculator?

it is easy to calculate simple interest. all you have to do is multiply three components with each other. 

we do not think that anyone can say the same about calculating compound interest. so people resort to using a compound interest calculator online to give them peace of mind.

here is how you can calculate your returns via a compound interest formula calculator online –

• enter your principal amount
• enter the interest rate
• enter the compounding interval per annum
• enter your time horizon

click on “calculate” and wait for a few seconds for the results to pop-up. 

how to use compound interest calculator online?

for calculating compound interest, you need the following details at your disposal –

• principal amount
• interest rate
• time horizon
• compounding interval in a year

once you have the requisite details, fill them in their requisite text boxes and get results within seconds. often people have options to choose from, and the online calculator is the best partner to help you choose the best one. you can fill in the details of all the options and find out the one bearing the highest interest.

simple interest vs compound interest

there are two ways we calculate interest on the amount deposited – simple and compound.

the former is simple – you take an interest rate and multiply it with the principal amount and the time period.

compound interest is a bit complex. also known as “interest on interest,” we calculate it on the principal amount and the accumulated interest until the calculation date.

formulas for calculating interest:-

simple interest – p x i x n

compound interest – p x (1 + i)n – p

where,

p – principal amount on which interest is to be calculated

i – periodic interest rate

n – number of compounding periods

which one bears higher returns for the investor?

the answer is compound interest. compound interest builds on the principal and the accumulated interest, whereas simple interest only considers the principal amount. the more times you are getting your investment compounded, the higher returns you will get. 

advantages of using compound interest calculator

there are two ways in which we can calculate interest—simple and compound. the former calculates the interest on the principal amount. in contrast, we calculate compound interest on the principal and the interest earned on it till that date.

calculating simple interest is everyone’s cup of tea, whereas compound interest calculation can be out of your ballpark unless you are a finance guy. so, it is always a better option to use a compound interest (ci) calculator online to inform you about your accumulated interest.

here is why you should use a compound interest calculator –

• accurate and reliable - our calculator is known for its accuracy, and you can trust it to provide reliable results.
• offers ease of use and can manage complex data conveniently - we do not believe in unnecessarily complexing our resources. so, you get a basic calculator that works!
• get results within seconds - we ensure that you get results within seconds. 
• no upper limit on usage - our calculator is a free-to-use version with no hidden limits.

benefits of online calculators over manual calculations: 

• online calculators can churn out results much faster than most humans. 
• they are more accurate and reliable. 
• unlike most humans, online calculators don’t suffer from monotonicity. 

what are the frequencies of calculating compound interest?

the basic idea of compound interest is that your principal gets compounded over and over again. it is simple - the lower the compounding period, the higher the interest earned.

a compound interest formula generator can help you calculate your compound interest in the following way –

understanding important terms of compound interest

principal – it is the seed, i.e., the amount that you initially deposit for compounding.

frequency of compounding - it refers to the times the plant bears fruit, i.e., it is the number of times you pay interest in a year (say monthly, quarterly, half-yearly, or annually).

how do different compounding periods affect interest?

compound interest takes into account several factors, including time horizon, compounding periods, and more. it is the reason many people resort to using a compound interest formula calculator for calculating the same.

compounding periods refer to the number of times the compounding takes into place in a given time horizon. it also impacts the applicable interest rates and other factors. 

for example,

mr. x invested ₹10,000 at an interest rate of 12% that compounds (i) monthly & (ii) quarterly. what would be his interest for the entire year in both scenarios?

 solution – 

(i) 

in this case,

p – rs. 10,000

i – 12%/12 = 1%

n – 12 times

compound interest – rs. 10,000 * (1 + 0.01)12 – rs. 10,000 = rs. 1,268

so, mr. x earned ₹1,268 for the entire year by investing ₹10,000.

(ii)

in this case,

p – rs. 10,000

i – 12%/4 = 3%

n = 4 times

compound interest – rs. 10,000 * (1 + 0.03) 4– rs. 10,000 = rs. 1,255.

so mr. x earns ₹13 more by opting for monthly compounding.

a compound interest calculator online would help you compare the different compounding periods and gauge the change in the overall interest earned.