Compound Interest Calculator
Principal amount
25,000
Interest amount
₹19,059
76%
Returns
Future value of your investment
₹44,059
What is Compound Interest?
The interest payable on a loan or receivable on a deposit can be in the form of either simple interest or compound interest. Compound interest is calculated based on the initial principal amount invested and the interest that has already accumulated from previous investment periods, both. In contrast to simple interest, which is computed only on the principal amount, compound interest ensures that your money grows faster over time as interest is earned on the principal amount as well as the accumulated interest.
Compound interest is a fundamental concept in finance, crucial for growing savings, retirement funds, and investments. By reinvesting earnings, you can take advantage of exponential growth, making your money work harder for you. Start early to maximise the benefits, as time is a key factor in the power of compounding.
How does Compound Interest Work ?
Compound interest works by calculating interest on the initial principal as well as the accumulated interest from previous periods. This process repeats over time, creating a situation where the investment grows at an increasing rate. The key to compound interest is the frequency of compounding – interest can be compounded annually, semi-annually, quarterly, monthly, or even daily.
₹1,000
Amount Investment
5%
Interest Compounded
1st year : ₹1,050
2nd year : ₹1,102.50
Total amount earning
every year
The more frequently interest is compounded, the greater the amount of interest earned. For instance, if you invest₹1,000 at an annual interest rate of 5%,compounded annually, you will have ₹1,050 after one year. In the second year, you earn interest on ₹1,050, not just the original ₹1,000, leading to a total of ₹1,102.50. Over time, this effect magnifies, significantly boosting your investment returns. If the interest were compounded semi-annually, quarterly, or monthly, the final amount would be slightly higher due to the increased frequency of interest application. This exponential growth makes compound interest a powerful tool for building wealth over time. The earlier you start investing, the more time your money has to grow through compounding.
Compound Interest Formula
The compound interest formula is used to calculate the future value of your investment. It uses factors such as the principal invested amount, expected rate of interest, and the frequency of compounding. The formula is:
- A is the total value of the investment.
- P is the principal investment amount.
- r is the annual rate of interest (in decimals).
- n is the number of times that interest is compounded per year.
- t is the tenure of the investment, in years.
This formula helps in determining how much an investment will grow over a specific period, factoring in the effects of compounding.
How to Use the Compound Interest Calculator?
Using m.Stock’s compound interest calculator is straightforward and allows you to easily estimate the future value of your investments. Here’s how to use it:
Visit the Link
Type the URL on your browser or click the link to visit m.stock’s compound interest calculator.
Enter the Principal Amount (P)
This is your initial investment or the starting amount of money you are investing or saving.
Input the Annual Interest Rate (r)
This is the rate of interest per annum, in percentage form (e.g., 5% should be entered as 5).
Choose the Compounding Frequency (n)
Select how often the interest is compounded—annually, semi-annually, quarterly, monthly, or daily.
Enter the Investment Duration (t)
This is the total time period the money will be invested or saved, in years.
Calculate
Press the calculate button to see the future value of your investment based on the inputs provided.
That's all you need to do! Using compound interest calculator by m.Stock , you will be able to:
- Project Accurately: Provides precise estimates of future investment growth without the scope of manual errors.
- Make Informed Decisions: Helps in making better investment choices based on potential returns.
- Save Time: Quickly calculates complex interest scenarios without manual effort.
- Plan Your Finances: Assists in setting realistic savings and investment goals.
- Compare: Enables comparison of different investment options and interest rates.
Compound Interest Example
Now that you know the compound interest formula, let's consider a simple example to illustrate how it works. Suppose you invest ₹1,00,000, as a lumpsum amount, in a mutual fund with an annual interest rate of 10%, compounded annually.
Amount
Investment
₹1,00,000
Annual
Interest Rate
10%
| Investment | Total Earning | |
|---|---|---|
| Year 1 | ₹1,00,000 | ₹1,10,000 |
| Year 2 | ₹,10,000 | ₹,21,000 |
| Year 3 | ₹,21,000 | ₹,33,000 |
This process continues, with each year's interest being added to the principal, so the amount of interest earned each year grows. Over 10 years, this compounding effect significantly increases your initial investment. If we calculate the future value using the compound interest formula:
After 10 years, your ₹1,00,000 grows to approximately ₹2,59,000, which is 2.5x your principal investment. This demonstrates how compound interest accelerates growth over time.
Difference Between Simple Interest and
Compound Interest Calculator
| Simple Interest Calculation | Compound Interest Calculation |
|---|---|
A simple interest calculator computes interest solely on the principal amount, while a compound interest calculator takes into account the interest earned on both the principal and the accumulated interest. Here's the difference: Simple Interest (SI) Calculation SI = P x r x t Where,
For example, investing ₹10,000 at 5% annual interest for 3 years yields: SI = 10,000 x 0.05 x 3 = ₹ 1,500 So, the total amount after 3 years is ₹11,500. | Using the same example but with annual compounding interest formula, as demonstrated earlier, we calculate: Compound Interest Calculation A = P (1+r/n)nt A = 10,000 (1 + 0.05)^3 = ₹ 1,577 The total amount after 3 years is ₹11,577. As you can see by this example, the compounded interest value is higher than the simple interest amount, with all the other variables being the same. The compound interest calculator provides a more accurate picture of how investments grow over time, considering the interest-on-interest effect. The key difference is that your investment can grow faster with compounding interest rather than simple interest, making it a more powerful tool for long-term investments. |