COMPOUND INTEREST CALCULATOR
Compound Interest Calculator
You must have come across compound interest calculators online. Probably, you have wondered if it could ever be of any use to you. It certainly is of help and let’s find how.
Let us first understand how interest works. With an understanding of interest, you can estimate the returns on your money. It lets you plan for the future and compare different investment avenues. There are two basic kinds of interest – simple and compound.
Simple interest is the fixed interest paid on your capital. When you invest Rs 10,000 into something, and the interest rate is 10 per cent, the simple interest for a year will be Rs 1,000.
However, people generally invest money for more than a year. If you invest for three years, the interest earned at the end of each year is added to the Principal and reinvested. Let’s say you invest Rs 10,000. You will earn interest of Rs 1,000 by the end of that year. By the end of the second year, you will earn interest on the Original Principal + Interest Earned in the First Year, or on Rs 11,000. Your interest would be 10 per cent of this amount, or Rs 1,100. This amount will be added in the third year to the Principal and become Rs 12,100. When the third year ends, you will earn 10 per cent of this, or Rs 1,210. This is called compound interest. A compound interest calculator gives you the result in a few clicks.
How to calculate compound interest
Calculating compound interest can be daunting for someone who is not math-savvy. But, if you don’t know how to do it, you don’t need to break your head trying to figure it out. You can opt for a compound interest calculator online.
If you want to do it on your own, here are the steps:
Compound interest = [P (1 + r/n)nt] - P
P = Original principal
R = Rate of interest
N = Number of times compounding has taken place in a year
T = Time or duration of the investment
So, if you invest Rs 10,000 for five years at an interest rate of 10 per cent, the compound interest you get at the end of five years would be:
Rs [10,000(1+0.1)5] – Rs 10,000 = Rs 6,105.1
With so many compound interest rate calculators available online, you can do the math in no time at all.
How to use it?
Using these calculators is pretty simple. Just enter the principal amount, the interest rate and the number of years you want to invest. There are other options too. For example, if interest is compounded monthly, there’s a monthly compound interest calculator. Banks in India generally do their compounding every quarter on their fixed deposits. So, if you are calculating returns from your bank FDs, make sure you enter the right compounding option, which is four. You can also use the calculator to find out how much your capital will be worth if you make regular additions to it over a specific time.
How a compound interest calculator India can help you
- Discover the power of compounding: Small amounts can turn into a nice little nest egg because of the power of compounding. See how much your money can reap in a few years or when you retire.
- Use it to set goals: Want to save money for the future? Use the compound interest calculator to find out how much you need to save each year.
- Compare different investment avenues: You can use the calculator to compare returns from fixed deposits and equity over a given time.