Compound Interest Calculator
Principal:₹ 10,000
Interest:₹ 44,736
Total value:₹ 54,736
What is Compound Interest?
Compound interest is nothing but interest on interest. While in simple interest you earn interest only on the initial principal, in compound interest, at the end of the period (say yearly), the interest gets added to the principal, thus earning interest on both the initial principal and the interest. Since the interest gets added at the end of every period, your capital grows exponentially in the long run.
You can see the comparison of simple interest, compound interest, and the difference between the total money accumulated in the below table.
| Years | Compounded Principal | Compound Interest | Principal | Simple Interest |
|---|---|---|---|---|
| 1 | 10,000 | 1,200 | 10,000 | 1,200 |
| 2 | 11,200 | 1,344 | 10,000 | 1,200 |
| 3 | 12,544 | 1,505 | 10,000 | 1,200 |
| 4 | 14,049 | 1,686 | 10,000 | 1,200 |
| 5 | 15,735 | 1,888 | 10,000 | 1,200 |
| Total | 17,623 | 16,000 |
How to calculate compound interest?
The future value using compound interest can be calculated using the following formula:
A - Accrued value (Principal + Interest)
P - Principal (initial Investment)
r - Interest rate in decimal
n - Number of times the interest is compounded per period. 1 when compounded yearly, 2 when compounded half-yearly, 12 when compounded monthly, and so on.
t - Duration/period of the investment.
For example, if you deposit ₹10,000 in a fixed deposit with an interest rate of 5% per annum for a period of 12 years with a yearly compounding frequency, then the formula would be:
That is, 10000 x $1.0512 = 10000 x 1.795856 = ₹17,958.56.
That means, ₹7,958.56 is earned as compound interest.
How can compound interest help me?
It depends on which side you are. If you have invested or deposited in an instrument that earns interest using compound interest, it can help you accumulate wealth in the long term.
If you have taken a loan or mortgage, then compound interest can work against you. The longer the loan period, the more the interest you will end up paying.
How to use the compound interest calculator?
FinanceDeft's compound interest calculator is easy to use. You need to enter the principal amount, Rate of interest, Investment duration in years, and how often the interest is compounded (1 when compounded yearly, 2 when compounded half-yearly, 12 when compounded monthly, and so on.)
It will display both the interest as well as the total value accumulated at the end of the investment period. You can also see the graphical as well as the tabular representation for a better understanding.
What is compounding frequency?
Compounding frequency is how often the interest is calculated on compound interest. Compounding frequency can be yearly, half-yearly, monthly, weekly, daily, etc.
When the compounding is more frequent, the total interest earned is more. That means, for the same amount and same time period, daily compounding will earn more interest compared to yearly compounding. You can verify this using the calculator provided above.