Compound Interest Calculator

What is Compound Interest?

Compound interest is the amount earned on the initial amount invested plus the interest accumulated over each cycle of compounding. In simple terms, it is interest earned on interest. The rate at which your investment grows is directly proportional to the time you allow the compounding. The longer you stay invested, the more your money grows, as compounding builds steadily with each cycle.

How Does Compound Interest Work?

Compound interest works on the principle of growth over time. Unlike simple interest, where interest is earned only on the initial investment, compound interest allows the interest earned to be reinvested, leading to higher returns with each cycle. Here is how it works:

- Initial Investment : The initial amount invested is known as the principal amount. All future calculations are based on this starting figure.

- First interest :The initial investment, or the principal amount, earns interest over time, which is known as the first amount of interest.

- Subsequent principal : The new principal amount for the next compounding cycle will include the principal investment and the interest accrued. This new total becomes the principal for the next cycle of compounding.

- Continuous increment of the principal : With every cycle, the principal grows as previous interest earnings are added. This continuous reinvestment leads to accelerated growth, making compound interest a powerful wealth-building tool.

How to Calculate Compound Interest?

The formula to calculate compound interest is A = P (1+r/n) t

where, 

A = Future value of the investment

P = Principal amount invested

r = The rate of interest (decimals)

n = Number of times interest gets compounded per period

t = Number of periods the money is invested for

Let us take an example to calculate this.

Raju has invested Rs. 10,000 for 10 years. The interest rate earned for the investment is 5%.

In the first year, Raju will earn Rs. 500 as his interest on the invested principal of Rs. 10,000. 

In the second year, the principal amount on which the interest will be calculated is the original principal invested plus the interest accumulated to date.

Therefore, the new principal amount will be Rs. 10,500, and the interest amount will be Rs. 525.

Subsequently, in the third year, the total principal will be 10,500 + 525 = 11,025

To arrive at the amount that Raju will receive at the end of the tenure or in the 10th year, we can directly place values in the abovementioned formula.

P = INR 10,000

r = 0.05

n = 1

t = 10

A = 10000 (1 + 0.05/1)10 = INR 16,288.95

Thus, the total interest Raju earn at the end of the 10th year is Rs. 16,288.95.

How to Use the Compound Interest Calculator by Tata Moneyfy

To use the compounding interest calculator, visit the Tata Moneyfy Compound Interest Calculator page.

Type an investment amount, which will be your principal amount. Let us assume this to be Rs. 1,00,000. Next, set the expected rate of return; we’ll take 5% for this illustration. Choose your investment duration in months or years. We choose 10 years for this example. 

The total estimated gains on Rs. 1,00,000 over 10 years at a 5% interest rate would be Rs. 62,889, making your total maturity amount of Rs. 1,62,889.

Benefits of using Moneyfy’s compound interest rate calculator

Moneyfy offers you an online compound interest rate calculator that offers you results instantly. Here are the benefits of this calculator:

1. Easy-to-Use and free

2. Reliable and accurate

3. Keeps your data secure

Apart from the compound interest rate calculator, Moneyfy also offers other calculators, such as an Equal Monthly Instalment (EMI) calculator, a Systematic Investment Plan (SIP) calculator, and a retirement calculator.

How can a Compound Interest Calculator beneficial for You?

Here are the benefits of using a compound interest calculator:

1. It helps you calculate the accurate amount and percentage of your returns over a specific period of time.

2. It helps you ascertain how much you must invest over a specific period of time so that your desired corpus can be attained comfortably. 

3. Moneyfy offers a customisable compound interest calculator which allows you to assign values to key factors depending on your needs.

4. It helps you calculate the total returns and annual returns in case you need to consider breaking the investment in the future. For accurate calculations, it's best to factor in pre-closure charges. 

5. The Indian Government has annualised the interest rates on national Savings Certificates to streamline the deposit rates. These changes came into effect in 2016. It's best to use a reliable online compound interest calculator like Moneyfy’s to determine how well your savings schemes work now.