Compound Interest Calculator

A compound interest calculator is an online tool designed to help you calculate the compound interest earned on your investment. It also calculates the maturity value of the investment. JAIN (Deemed-to-be-University)’s compound interest calculator helps you calculate the compound interest earned on your investment with just a single click. This calculator allows you to assess how compound interest can accelerate the growth of your money compared to simple interest. The JAIN (Deemed-to-be-University)’s CI calculator uses accurate mathematical formulas to calculate compound interest, ensuring dependable results. The calculator is designed with a simple interface, making it easy for users to input their financial data and calculate compound interest effortlessly. Let us learn more about this topic today:  

What is Compound Interest?

Compound Interest refers to earning interest not only on the initial investment but also on the interest that has been added to it. In simple terms, it's "interest on interest." Instead of receiving periodic interest payments, the interest is reinvested, gradually increasing the principal amount over time.

To understand what is compound interest better, let us look at an example:

Suppose you want to invest Rs. 5,00,000 for 2 years with quarterly compounding, your interest will be reinvested every quarter. Let’s assume the interest rate is 8% per annum. You will earn 2% interest on your investment each quarter (since 8% ÷ 4 = 2%). For the first quarter, your interest would be:

Interest for 3 months

5,00,000 × 2% = 10,000

After the first quarter, your total investment becomes Rs. 5,10,000 (Rs. 5,00,000 + Rs. 10,000). For the next quarter, you will earn interest on the new principal of Rs. 5,10,000. This process continues, with interest being calculated on the accumulated total at the end of each quarter. For the second quarter:

Interest for 3 months

5,10,000 × 2% = 10,200

After the second quarter, the total investment becomes Rs. 5,20,200 (Rs. 5,10,000 + Rs. 10,200). The cycle repeats, with each quarter’s interest being calculated on the new principal. This process continues for the full 2 years, and at the end of the investment period, your investment will have grown due to the compounding effect.

How to Calculate Compound Interest?

To calculate compound interest, you need to understand the key concept of earning interest not only on your initial investment (the principal) but also on the interest that is added to it. This process starts when your investment begins earning interest, and the interest is added to the principal. In the following period, interest is then calculated on this new, combined balance.

Compound Interest Formula

The compound interest formula follows the equation given below: 

A = P(1+R/N) nt

Where:

• A = Total Amount (Principal + Compound Interest)

• P = Initial Principal Amount (the starting investment)

• R = Annual Interest Rate (expressed as a decimal)

• N = Number of times interest is compounded per year

• nt = Total number of compounding periods (Years × N)

Let us look at some compound interest examples to understand the formula better:

Example 1: For example, suppose you invested ₹1,000 in a fixed deposit that pays 5% interest annually for 3 years. The interest will be compounded annually.

Using the A = P(1+R/N)nt

• P = ₹1,000

• R = 5% (or 0.05 as a decimal)

• N = 1 (compounded annually)

• t = 3 years

A = 1,000 x (1 + 0.05/1) 1×3 

A = 1,000 x (1+0.05)3

A = 1,000 x (1.05)3

A = 1,000 × 1.157625

A = ₹1,157.63

So, after 3 years, your investment will grow to ₹1,157.63. The compound interest earned is ₹1,157.63 - ₹1,000 = ₹157.63.

Example 2: For example, suppose you invested ₹30,000 in a fixed deposit that pays 6% interest annually, compounded monthly for 1 year.

Using the A = P(1+R/N)nt

• P = ₹30,000

• R = 6% (or 0.06 as a decimal)

• N = 12 (compounded annually)

• t = 1 year

A = 30,000 (1 + 0.06/1) 12×1

A = 30,000 (1+0.005)12

A = 30,000 × (1.005)12

A = 30,000 × 1.061677

A = ₹31,850.31

So, after 1 year, your investment will grow to ₹31,850.31. The compound interest earned is ₹31,850.31 - ₹30,000 = ₹1,850.31.

What is Compound Interest Calculator?

A compound interest calculator shows how an investment grows over time at a compounded interest rate. You can calculate compound interest with different frequencies such as daily, weekly, monthly, quarterly, semi-annually, or yearly. To get accurate results, you need to just enter the following details: the principal amount, the interest rate, the investment period, and the compounding frequency.

How Does Compound Interest Calculator Work?

Now that you know what is compound interest calculator, let us look at the steps on how to use this calculator:

• Step 1 - Enter either a lump sum or a monthly investment amount based on your preference.

• Step 2 - Enter the expected rate of return you anticipate for your investment.

• Step 3 - Select the compounding interval from the available options: daily, monthly, quarterly, or yearly

After you have entered these three values, the compound interest calculator will automatically compute your total gains and the final corpus that you will have by the end of the investment period.

What is a Compound Interest EMI Calculator?

A compound interest loan calculator is a tool used to calculate the Equated Monthly Instalments (EMI) for a loan where the interest is compounded over time. The EMI calculator compound interest helps borrowers determine the fixed monthly payments required to pay off a loan with compound interest, based on factors like the loan amount, interest rate, and loan tenure. 

The loan calculator compound interest uses the compound interest formula to calculate the EMI. The formula for compound interest EMI is:

EMI=P x r(1+r) n / (1+r) n – 1

Where,

• P = Loan principal (amount borrowed)

• r = Monthly interest rate (annual interest rate divided by 12 and expressed as a decimal)

• n = Total number of monthly instalments (loan tenure in months)

In a Nutshell

The JAIN (Deemed-to-be University)’s compound interest calculator is a valuable online tool that will help you understand the power of compound interest. It gives you a simple yet efficient means of estimating the amount of interest on your investment. This calculator shows how the concept of compound interest can increase the rate at which your money grows as compared to simple interest. This calculator makes the work easier, and the impact of the compound interest is explained in a comprehensible manner. This leads to the overall understanding as to how compounding investment can result in the generation of sizeable capital over time and hence show everyone the advantages of smart investment.

FAQs

How can I calculate compound interest?

You can calculate compound interest either by using the compound interest formula, given by:

A = P(1+R/N) nt

Or you can calculate compound interest online using our calculator pinned at the beginning of this blog.

What is the difference between simple interest and compound interest?

Simple interest is calculated based solely on the original principal amount. On the other hand, compound interest is calculated on both the principal amount and the interest that has been accumulated over previous periods, before the next compounding occurs. This process can be described as "interest on interest."

Why is compound interest so powerful?

Compound interest is powerful because it accelerates the growth of your wealth. Unlike simple interest, which is based only on the initial investment, compound interest allows you to earn returns on both your original principal and the accumulated returns at the end of each compounding period. This results in faster growth over time.

Is compound interest better than simple interest?

Yes. Compound interest is better than simple interest, especially when you are saving or investing money. Compound interest allows your money to grow faster because it earns interest not only on the principal but also on the accumulated interest from previous periods. This leads to accelerated wealth growth over time. However, if you are borrowing money, simple interest is preferable as it will cost you less in interest over the loan tenure.

What is the formula for calculating compound interest?

The formula of compound interest comprises four variables P, R, N, n. The equation is:

A = P(1+R/N) nt

How often is interest compounded?

Interest can be compounded at different intervals, such as daily, monthly, quarterly, or annually. The more frequently interest is compounded, the greater the impact of compounding on the investment.