Frequently Asked Questions
The formula for compound interest is A = P(1 + r/n)^nt, where A is an accrued amount, P is the principal amount, r is the interest rate, n is the number of times interest is compounded per unit of time, and t is the number of the time period.
For example, suppose you have invested Rs. 1,00,000 for 20 years. You are earning 10% per annum on your investments. With the above formula, you can calculate how much you will have at the end of 20 years.
A= 1,00,000(1+10%/1)^20 = Rs. 6,72,749
It means the total interest you have earned is 5,72,749 over the period of 20 years.
If you want to calculate how much money you will have after particular time, you can use the above power of compounding calculator. Below are the steps to use the compounding calculator.
Step 1: Enter the amount you want to invest
Step 2: Select the time frame of your investment. You can move the slider to select the investment time.
Step 3: Enter your expected return on investment.
After following these steps, you will see the graph on the right-hand side. This will give you a clear idea of how much amount you would have at the end of the investment term. The power of compounding is a powerful tool that helps you understand how much money you need to invest to achieve your desired amount at the end of the investment.
The main advantage of the power of compounding calculator is:
a. It is easy to use and shows you the investment growth within seconds.
b. This calculator helps you set your financial goal and plan for achieving it.
c. You can experiment with the interest rate and time for an investment to see how your investment value changes and easily compare the returns.
The amount which you will receive at the end of the investment term depends on the frequency of compounding. While investing, you should always look for how often the interest is compounded. There are various options available where the compound interest is accrued daily, monthly, and yearly basis. These are nothing but the frequency of compounding.
Let’s understand this with a simple example. Consider you invested Rs. 1,00,000 for 5 years. You have three options where the rate of return is 10%, which is accrued on a daily, monthly and annual basis. So, you will end up with Rs.1,64,000 if the compounding is done on monthly basis, Rs.1,62,889 if it is done semi-annually, and Rs.1,61,051 if it is done on annual basis.
There are two ways in which the interest is earned on the investment – simple interest and compound interest. The key difference between simple interest and compound interest is as follows:
Sr. No. |
Simple Interest |
Compound Interest |
1 |
The interest is calculated only on the invested amount. |
The interest is calculated on the investment amount and also the accrued interest amount. |
2 |
The principal amount does not change in simple interest. |
The principal amount keeps changing as the interest amount is added to the principal during the period. |
3 |
Constant interest amount is earned on the principal. |
Interest amount keeps increasing as the principal amount keeps increasing. |
4 |
Time doesn’t have much impact in simple interest calculation |
Time plays a major role in compound interest calculation. |
5 |
Simple interest is not useful to grow your investment. |
Compound interest created a huge impact on the growth of your investment. |
A Wide variety of customized solutions for every professional.