# Compound Interest Calculator

Compounding Frequency

- Yearly
- Half Yearly
- Quarterly

Principal Amount

₹ 10,000

Total Interest

₹ 12,878

Total Amount

₹ 22,878

**Compound Interest Calculator**

Saving money is essential to invest your savings and earn returns. When it comes to investments, different avenues are available, each with its own set of features and benefits. Most investors look at the returns from an investment. They choose schemes with the highest returns for maximum gain.

There are two ways of calculating interest on an investment. One is the simple interest method, and the other is the compound interest method. Most investment avenues use the compound interest method to yield higher returns. Let us understand compound interest, how it works, and how you can calculate it.

**What is Compound Interest?**

Compound interest is a mode of interest calculation wherein you earn interest on the interest you earned previously. Confused? Let us simplify things.

Under compound interest, the interest is, first, calculated on the amount you invest or deposit. The interest earned adds to the amount invested. The next time, you calculate the interest on the aggregate amount (i.e., the deposited amount and the added interest).

Thus, the earned interest accumulates under compound interest, and you keep earning interest on the accumulated amount.

**What is a Compound Interest Calculator?**

Calculating the compound interest on your investments involves a mathematical calculation. This calculation takes time and effort. For instant results, you can use the compound interest calculator.

The compound calculator is an online calculation tool that calculates the total interest earned on your investment through the compound interest method. You have to enter the details of your investment to calculate compound interest online. The calculator works out the interest in absolute terms and gives you the answer within seconds.

**How does Compound Interest Work?**

In the case of compound interest, you should calculate the first interest on the amount invested. For instance, say you invest ₹10,000, and the interest rate is 8% p.a., compounded annually. In this case, in the first year, you will earn an 8% return on your investment of ₹10,000. It translates to ₹800 in earnings over the year.

In the next instance, when you calculate the compound interest, the interest earned previously gets added to the invested amount. The compound interest is then calculated from the total amount.

So, in the above example, the interest earned of ₹800 is added to ₹10,000, giving an aggregate amount of ₹10,800. In the next year, the interest is calculated at ₹10,800 and not ₹10,000. Thus, you will earn 8% of ₹10,800, i.e. ₹864.

The interest is added to the cumulative amount every time, and the subsequent compound interest is calculated from the aggregate amount.

**Compound Interest Formula and Steps to Calculate Compound Interest**

The calculation of compound interest is a two-step process. First, you should calculate the amount at the end of the investment tenure. Then, you deduct the amount from the investment amount to get the compound interest.

To calculate the aggregate amount at the end of the tenure, the following mathematical formula is used -

A = P [{1 + (R/N)} ^ (N X T)]

In this compound interest formula, the values are expressed as follows -

A = Amount on maturity

P = Investment amount

R = Rate of interest or interest rate

N = Compounding frequency, i.e., how many times interest is calculated in a year

T = Investment tenure

Once you calculate the amount, you deduct it from the principal invested and get the compound interest. So, the compound interest formula is as follows -

Compound interest = A - P

**How to use the Compound Interest Calculator?**

To use the compound interest calculator, you will have to provide the following details to calculate compound interest online-

- The amount invested
- The investment tenure
- The rate of interest, actual or estimated
- Compounding frequency

Once you enter the details, hit 'calculate', and the compound calculator will calculate the maturity amount and the compound interest earned on the investment in one go. You would not have to calculate compound interest separately.

**Compound Interest Example**

To understand how compound interest works and is calculated, here's a little example -

Say, you invest ₹1 lakh in an avenue yielding 8% interest p.a., compounded annually. The investment tenure is 5 years. Here's how to calculate compound interest -

Investment amount (P) | ₹1 lakh |

Rate of interest (R) | 8% p.a. or 0.08 |

Compounding frequency (N) | 1 since the interest is compounded annually, i.e., once every year |

Investment tenure (T) | 5 years |

Amount (A) | P [{1 + (R/N)} ^ (N X T) ]
= ₹1 lakh [{1 + (0.08/1)} ^ (1 X 5)] = ₹1,46,933 (rounded off to the nearest rupee) |

Once we know the amount, we should calculate the compound interest using the next part of the formula, i.e. -

Compound interest = Amount on maturity - Investment amount

= ₹1,46,933 - ₹1,00,000

= ₹46,933

**Benefits of Compound Interest Calculator?**

There are multiple benefits of using the compound interest calculator. Some of the primary ones are as follows -

**Instant Calculation**

With the compound interest calculator, you don't have to do complex mathematical calculations. Just enter the investment details and get instant results without calculations. The calculator is, thus, convenient and quick.

**Free to Use**

Utilising the compound interest rate calculator does not involve any fees. You can use the calculator anytime and even multiple times to check the returns from any investment avenue.

**Return Assessment**

The compound interest rate calculator gives you accurate returns from an investment avenue. You can check the returns in absolute terms and assess how much your investment will yield over a specified tenure at a given interest rate.

**Helps in Financial Planning**

Knowing the corpus you can create with an investment avenue, you can plan for your financial goals. By showing the expected maturity amount, the compound interest calculator shows the corpus you can accumulate and helps you plan your savings and investments accordingly.

**Helps in Comparison**

You can calculate the expected returns from different investment avenues and then compare each avenue based on the returns generated. It helps you choose the most profitable investment avenues to create a suitable corpus for your financial goals.

**Conclusion**

Knowing the returns from an investment avenue motivates individuals to save and invest for their financial goals. A compound interest calculator helps calculate the returns from your investments effortlessly. So, when investing, use the compound interest calculator and compute the expected maturity amount. You can also use the calculator to check how your investments are performing. Use the calculator free of cost and know your returns.

## Frequently Asked Questions (FAQs)

How do I calculate compound interest?

You can calculate compound interest using the mathematical formula. Alternatively, you can calculate the compound interest using the compound interest formula calculator. Enter the investment amount, tenure, compounding frequency and interest rate to know the interest amount.

What Is Daily, Monthly and Yearly Compounding?

Daily compounding is when the interest is calculated every day. In this case, the compounding frequency is 365, which is entered into the compound calculator for daily calculation.

Monthly compounding means the interest is calculated every month. In this case, the compounding frequency is 12, which is entered into the monthly compound interest calculator.

Yearly compounding means the interest is calculated once every year. In this case, the compounding frequency is 1.

What Are Compound Interest Investments?

Investments yielding compound interest on your investment are called compound interest investments. Usually, most investments offer compound interest.

What is the difference between simple and compound interest?

In the case of simple interest, interest is calculated on the invested amount and not on the returns earned during the tenure. On the other hand, in the case of compound interest, interest is calculated both on the invested amount and the interest earned on it in previous years. Thus, simple and compound interest are two different modes of interest calculations with different formulae.

How do I calculate compound daily interest?

The formula's compounding frequency (N) is set at 365 to calculate compound daily interest. The compound interest formula will remain the same, and you can use the daily compound interest calculator to find the result.

What is 6% interest compounded daily?

6% interest compounded daily means the investment will yield 6% interest on your investment every day. You can use them to calculate the maturity amount. So, if you

invest ₹100, the amount after one year will be ₹106.18, and the interest earned will be ₹6.18, calculated through the daily compound interest calculator.

How do you calculate monthly compounded interest?

The compounding frequency is set at 12 to calculate monthly compound interest. Using this value, you can use the compound interest formula calculator and find the total interest.

Which scheme gives monthly compound interest?

Different schemes have different compounding frequencies. You should check the frequencies to find schemes offering monthly compound interest. Then, use the monthly compound interest calculator and check for the maximum possible returns. For instance, Shriram Finance offers a monthly compound interest option with its fixed deposit schemes.

How do you calculate quarterly compound interest?

In the case of quarterly compound interest, the compounding frequency is 4 in the quarterly compound interest formula. This frequency is used in the quarterly compound interest formula calculator to find the quarterly compound interest.

How is compound interest calculated on a loan?

Compound interest on the loan is calculated using the following formula -

P {(1 + R) ^ N} - P.

Where P is the loan amount, R is the interest rate, and N is the loan tenure.

So, if you take a loan of ₹10 lakhs for 5 years and the interest rate is 8% p.a., the compound interest is calculated as follows -

₹10 lakhs {(1 + 0.08) ^ 5} - ₹10 lakhs = ₹4,69,328.

You can enter the details in the compound interest loan calculator to check the interest payable.

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