Compound Interest Calculator
Total investment
Tenure (Years)
Interest Rate (P.A)
A Detailed Guide on How to Use Compound Interest Calculator
Compound interest is the one that individuals earn on their investment plus accumulated interest. It helps individuals to earn a higher return on their savings and investments. However, compound interest can affect individuals negatively when they are paying interest on a loan. Before investing or taking a loan, one thus needs to calculate compound interest which they can easily do by using a compound interest calculator.
Wondering what a compound interest calculator is or how to use it? Read the following sections and get a clear idea about the same!
What Is a Compound Interest Calculator?
Compound Interest Calculator is an online tool that helps loan applicants or investors calculate the amount they are going to pay or receive throughout the term of the loan or investment tenure.
A compound interest calculator helps individuals to create a projection for compound growth on a savings account or investment for a period of time on the basis of ongoing interest rates.
As individuals are aware of the compound interest calculator, we must focus on the calculation process.
What Is the Formula to Calculate Compound Interest?
There is a standardised compound interest formula. Individuals can use the following formula to compute compound interest easily,
Formula for Compound Interest Calculation:
A = P (1+r/n) ^nt
The variables in the formula are as follows,
A= Compound interest
P= Principal amount
R/r= Rate of interest
N/n= Number of times interest compounds in a year
T/t= Tenure/ number of years
Let’s decode the compound interest formula with an example,
Suppose an individual has invested ₹ 50,000 for 3 years at an annual interest rate of 10%. Therefore, in the first year, the accrued interest will be the following,
|
Pointers |
Value |
|
Principal |
₹ 50,000 |
|
Interest Rate |
10% |
|
Interest Earned (1st Year) |
₹ 50,000 x 10/100 = ₹ 5,000 |
|
Interest Earned (2nd Year- Interest will be calculated on the principal and accumulated interest of the 1st Year) Total Amount |
₹ 50,000 + ₹ 5,000= ₹ 55,000 (Principal+ interest of 1st year) Hence, interest earned on 1st year= ₹ 55,000 X 10/100 = ₹ 5,500 Total interest earned/accumulated in the 2nd year= ₹ 5,500+ ₹ 5,000 = ₹ 10,500 ₹ 50,000+ ₹ 10,500 = ₹ 60,500 |
|
Interest Earned (3rd Year- Interest will be calculated on the principal and accumulated interest of the 1st year and 2nd Year) Total Amount |
₹ 55,000 + ₹ 5,500 = ₹ 60,500 (Principal + interest of 2nd year) Hence, interest earned on 2nd year= ₹ 60,500 X 10/100 = ₹ 6,050 Total interest earned/accumulated in the 3nd year = ₹ 6,050 + ₹ 5,500 + ₹ 5,000 = ₹ 16,550 ₹ 60,500 + ₹ 6,050 = ₹ 66,550 |
How to Use a Compound Interest Calculator?
Currently, there are various compound interest calculators available on the internet. To use this calculator, one has to follow the steps mentioned below.,
Step 1 - One has to adjust the slider under the ‘Total Investment’. As per the above example, one has to adjust the slider and fix it at ₹ 50,000. Also, they can put the value in the adjacent box,
Step 2 - they have to put a value or adjust sliders under the ‘Tenure’ part. Here, they have to enter 3 years.
Step 3 - At last, they have to enter an interest amount (per annum- here, 10% p.a) in the relevant box. For example-
|
Inputs |
Values |
|
Total Investment (i.e. Principal Amount) |
₹ 50,000 |
|
Tenure |
3 years |
|
Interest Rate |
10% |
Enter these details in respective boxes to learn about the compound interest amount. The calculator will show the following details.
|
Outputs |
Values |
|
Interest Amount |
₹ 16,550 |
|
Total Amount |
₹ 66,550 |
What Are the Advantages of Using Compound Interest Calculators?
Following is a list of advantages of using a compound interest calculator -
1. Ease of Use
Compound interest calculator available on the majority of websites ensures ease of use. Individuals have to put data in the relevant boxes or just adjust sliders, and the calculator will show results accordingly. Individuals can try various combinations to get an idea about the interest earned/total principal amount that will be accumulated at the end of the tenure.
2. Accuracy
Since compound interest calculators are online tools and functions on the basis of a pre-set formula, there are no chances of error in calculation.
3. Time-saving
Calculating compound interest manually can take hours if the tenure is more than 10 or 15 years. Contrarily, a compound interest calculator shows results within seconds which saves time a lot.
The benefits of using a compound interest calculator are clear to individuals. However, individuals must know about certain things that are related to compound interest and help individuals to use this tool efficiently. Read along!
What Are the Components of Compound Interest?
There are four components of compound interest. These are principal, interest, compounding frequency, time horizon.
What Factors Affect Compound Interest?
Factors that affect compound interest are -
- Interest Rate: A higher interest rate will return a larger rate/amount of compounding.
- Length of Time: The time period throughout which the money will continue to stay in the account for compounding. The longer the time, the bigger the returns can be.
- Compounding Frequency: Compounding occurs on a monthly, quarterly, or annual basis. Here, compounding frequency refers to the number of times per year the accumulated interest is paid out. Compounding frequency affects interest rates as high-frequency compounding is usually available with lower rates.
At this point, we have reached the end of this piece on the compound interest calculator. Read the process and details mentioned above attentively and use this online tool without any hassle.
