Compound Interest Calculator Monthly, Quarterly, Yearly Compounding

If you have an understanding of how much money you would like at the end of the investment term, you can check the graph on the right-hand side of the page. Compound Interest enables investors earn more on their investment. Compound Interest can be compounded on a daily or a monthly or a quarterly basis, as per the agreement. If so, it is also advisable to consider pre-closure charges of the investment corpus. As a rule of thumb, the more time you allow the principal to grow, the bigger will be your accumulation on which you’ll earn interest. We divided 5% by 4 because the interest compounds 4 times each year, effectively compounding 20 times in 5 years.

The ClearTax Compound Interest Calculator is easy to use and shows the compound interest on deposits in seconds. The ClearTax Compound Interest Calculator will show you the compound interest you have earned on the deposit. With savings accounts, the interest compounding is at either the start or the end of the period . The return from compounding is higher than that of simple interest. The principal keeps changing due to the addition of accumulated interest during the period.

How to use the Compound Interest Calculator?

It is basically ‘interest earned on money that was previously earned as interest’. This allows your sum and interest to grow at a faster rate compared to the simple interest which is calculated only on the principal amount. The monthly compound interest formula is used to find the compound interest per month. Compound interest for the first period is similar to the simple interest but the difference occurs in and from the second period of time. From the second period, the interest is also calculated on the interest thus earned on the previous period of time, that is why it is known as interest on interest.

How do you calculate compound interest?

Compound interest is calculated by multiplying the initial principal amount (P) by one plus the annual interest rate (R) raised to the number of compound periods (nt) minus one. That means, CI = P[(1 + R)nt – 1]


P = Initial amount

R = Annual rate of interest as a percentage

n = Number of compounding periods in a given time

To determine how much your savings schemes now work, you must use an online calculator. Calculator helps you identify how much investment you might need over a time frame. The required corpus of funds can then be arranged with convenience. Once more, you have the choice of adjusting the slider or manually entering the desired number in the space provided.

Compound Interest when the Rate is Compounded half Yearly

Though the actual investment period is 5 years and the rate is 5%, the formula takes the time as 20 and the rate as 1.25% (5% ÷ 4). 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. However, in the case of a loan, interest calculated at a simple interest rate will end up being lower in comparison to interest calculated at a compounding interest rate. In fact, compound interest with credit is usually applicable to penalties or outstanding balance.

If Sam lends his friend $1,500, that is ₹ 1,23,630 in our currency. It is given a compounded monthly interest rate of 4.3% annually. Using the compound interest calculation, determine the interest due after the year has ended. You have the choice to carry on investing for a longer amount of time once you have done adding cash to your capital invested.

compound interest formula example india

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What Are Compound Interest Investments?

All of these mean you’ll get the given rate of interest over a period of 1 year. It is the percentage of interest earned lending a sum of money. Compound interest is the interest calculated on the principal and the interest accumulated over the previous period.

You can use ET money’s compound interest calculator to compute compound interest. You just have to enter principal, interest, tenure, and compounding frequency to calculate compound interest. Once you’re done putting money in your investment, you can choose to remain invested for a longer time.

But the compound interest is varying and increasing across the years. Because the principal on which the compound interest is calculated is increasing. The principal for a particular year is equal to the sum of the initial principal value, and the accumulated interest of the past years. If the calculation of compound interest is not annual, then the rate of interest also needs to be calculated in accordance. If interest is compounded half yearly, then the rate of interest also needs to be divided by 2 if the given rate of interest is for per annum. One of the major purposes of the compound interest calculator is to tell you what your capital today is going to be worth tomorrow.

To maximise the benefit you can enjoy from a compound interest investment, it’s crucial that you start saving and investing as quickly as possible. The more time your money has to compound and grow, the more you will end up with. An investment of ₹ 1,00,000 at a 12% rate of return for 5 years compounded annually will be ₹ 1,76,234. From the graph below we can see how an investment of ₹ 1,00,000 has grown in 5 years.

compound interest formula example india

The basic difference between simple and compound interest is that the interest is not added to the principal in simple interest. To earn interest on interest one has to immediately reinvest the interest earned. But in compounding this happens automatically with no extra effort needed. We can understand this better with an example.Let’s say Mr A has made an investment of ₹ 10,000 for just 3 years at a rate of 7%.

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It will generate more money compared to interest compounded monthly, which has only 12 compounding cycles per year. The sum of money lent for a certain period of time at a particular rate of interest. Now, let us understand the difference between the amount earned through compound interest and simple interest on a certain amount of money, say Rs. 100 in 3 years . Here is how the compound interest calculator can be of help to investors. The nature of compound interest makes it very relevant for businesses.

What is 12% compounded monthly?

‘12% interest’ means that the interest rate is 12% per year, compounded annually. ‘12% interest compounded monthly’ means that the interest rate is 12% per year (not 12% per month), compounded monthly. Thus, the interest rate is 1% (12% / 12) per month.

Both of these have stark differences, which are especially evident when the two are applied to real-world scenarios. Remember that for investments, simple interest will always result in a lower yield when compared to compounding interest. You can use the ClearTax Compound compound interest formula example india Interest Calculator from the comfort of your home. It is an easy to use tool where you enter the compounding frequency, principal amount, interest rate and the period. The ClearTax Compound Interest Calculator shows the interest you earn on the deposit in seconds.

Let us learn more about the monthly compound interest formula along with solved examples. Compound interest investments are the type of investment that compounds interest periodically, either daily, monthly, or annually. It includes investments such as fixed deposits, certificates of deposits, money market accounts, etc. The power of compounding has been said to be phenomenal by the likes of Warren Buffet. What’s important though, is to realise that the power of compounding works in your favour when you earn compound interest, but not when you’re the one paying it. To that point, you can leverage the power of compounding by investing in a range of assets, including mutual funds, fixed deposits, or even PPF.

How To Calculate Amount Using Compound Interest Formula?

There is a general compound interest formula for the calculation of compound interest i.e.,

CI = Amount – Principal

where, Amount = P(1 + r/100)t. By substituting the given parameters such as P (principal amount), r (rate of interest), and t (time) amount can be easily calculated.

Compounding interest works to your advantage by helping your investment grow exponentially. In compound interest, the interest amount calculated is added to the principal amount, and the next return is calculated on the new principal. Calculating the compound interest manually can be a bit tricky because it includes the number of compounding periods in a year. As such, the value of this variable has the potential to change and leaves room for error.

  • So, if you are calculating returns from your bank FDs, make sure you enter the right compounding option, which is four.
  • The possibilities of compound interest are virtually limitless in mathematics.
  • Compounding interest needs to be understood in contrast to simple interest.
  • So, the interest in the second year will be calculated on the new principal which is the sum of the previous year’s principal and earned interest.

You then choose the rate of interest and the period in days, weeks, months, quarters, or years. Invest in the best mutual funds recommended by Scripbox that are algorithmically selected that best suit your needs. Let’s calculate the interest income for an investment of Rs 1 lakh at a rate of 20% p.a. In compound interest, the investment grows much faster than the simple interest as the interest is paid on both investments and previous interest. Also, having a loan in simple interest ensures standard interest payments.


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