What is Compound Interest?
Compound Interest is the interest you will receive on a loan or deposit, taking into account the initial amount and the previous interest accumulated over time. It can be seen as the interest you earn on interest, and thus, contributes to a faster increase rate on the principal amount.
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For example, if you add Rs. 10,000 in your account on a 1 percent annual interest, you will earn Rs. 100 in interest after a year, taking the total to Rs. 10,100. In the successive year, due to compound interest, you will earn 1 percent on Rs. 10,100 and not the principal amount of Rs. 10,000, making the total Rs. 10,201, which means CI is Rs. 101.
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What is a Compound Interest calculator?
A Compound Interest calculator is used to calculate the projection for compound growth for your savings account or investment for different periods of time, based upon a certain rate of interest.
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How does a Compound Interest calculator work?
The Compound Interest calculator uses three metrics, the principal amount, interest rate and the time period of money invested, and the Compound Interest formula, to calculate the Compound Interest.
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What is the formula of Compound Interest?
The following formula is used to calculate Compound Interest:
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A = P (1 + r/n) ^ nt
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Where, CI = A – P
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Where:
CI = Compound Interest
A = Total amount received after a certain numbers of years
P = Principal Amount/Present Amount
r = Rate of Interest (percentage) / 100
N/n = Number of times interest compounds in a year (daily, monthly, yearly, etc)
T/t = Number of years
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How do we calculate Compound Interest?
To calculate Compound Interest, you must know the three parameters required to compute it. These include the Principle Amount you’ve borrowed or mean to borrow, Let’s say Rs. 10,000. The number of years you will pay back the loan in, let’s say 10 years. The rate of interest is the extra interest you will have to pay on the loan, let’s say 10%. Also check how many times in the year is the interest compounded. For this example, let’s say annually, i.e., 1 time a year.
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Now use the CI calculator or use the Compound Interest formula to compute the total compound Interest you are liable to pay.
A = P (1 + r/n) ^ nt
A = 10,000 (1 + 0.1) ^ (1)(10)
Total Amount is Rs. 25,937.42
Where, P is Rs. 10,000, making CI Rs. 15,937.42
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You can calculate the Compound Interest by simply using the Upstox Compound Interest calculator.
What are some examples of Compound Interest?
Compound Interest can be calculated using the Compound Interest formula:
A = P (1 + r/n) ^ nt – P
CI = A – P
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Where:
CI = Compound Interest
A = Total Amount accrued
P = Principal Amount/Present Amount
R/r = Rate of Interest
N/n = Number of times interest compounds in a year
T/t = Number of years
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For example, you invested Rs. 5,000 in a fixed deposit that compounds interest quarterly with a 10% per annum rate of return. The amount invested remains in the fixed deposit for 5 years. Therefore, the values of the variables will be:
P = 5,000
r = 10/100 = 0.1
N/n = 4
T/t = 5
Now, putting the values in the formula:
A = 5000 (1 + 0.1/4) ^ 4×5
A = 8193.08
CI = A – P
CI = 8193.08 – 5000
So, in 5 years, your Compound Interest is Rs. 3193.08.
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Here is another example for calculating Compound Interest. Imagine you have put Rs. 10,000 in your savings account for 10 years, earning 5% interest per year. Our compounding in this case is yearly. Therefore, the values of the variables will be:
P = 10,000
R/r = 0.05
N/n = 1
T/t = 10
Now, putting the values in the formula:
A = 10000 (1 + 0.05/1) ^ 1×10
A = 16,288.946
CI = A – P
CI = 16288.946 – 10000
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So, in 10 years, you will receive a total Compound Interest of Rs. 6,288.946.
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What are the benefits of using a Compound Interest calculator online?
Calculating the Compound Rate can be extremely difficult and tedious. Manual calculation is also prone to mistakes. On the other hand, using a Compound Interest calculator is easy, reliable, accurate and fast.
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How is Upstox the best online Compound Interest calculator?
Being a top player of the finance world, Upstox is committed to providing a seamless experience when it comes to your finances. Our online Compound Interest calculator is built with the best user interface, making it easy to use, speedy & comfortable. The online CI calculator is designed to help you align your financial goals & current investments.