Compound Interest Calculator

What is a Compound Interest Calculator?

A compound interest calculator is an advanced mathematical calculator that helps you calculate the return on your investments if compounded periodically. The calculation for compound interest differs from that of simple interest. The calculation for compound interest is more technical as compared to simple interest. In compound interest, the return calculated is on the principal plus the previous interest earned. Modern-day businesses work on the principle of the compounding effect, i.e. reinvesting the returns to earn more returns on their investment.

What is Compound Interest?

Compound interest is the interest charged on the loan amount or the deposit amount adding the interest earned in the previous term. The calculation of the compound interest differs from that of the simple interest. In mathematics compound interest is denoted by C.I.

The main difference between compound interest and simple interest is that in the case of simple interest, the amount on which the interest is calculated remains constant throughout the period. Whereas in compound interest the amount on which the interest is calculated keeps on changing.

Fun fact

It is generally agreed that the origin of compound interest can be traced back to the Old Babylonian period (ca. 2000–1600 BCE), because we know that the Babylonians called compound interest şibāt şibtim “interest on interest” in Akkadian, and even solved mathematical problems on it.

Advantages of using a Compound Interest Calculator –

1. Time-saving: Using a compound interest calculator to calculate the returns on your investment saves you a lot of time. The formula for calculating the returns on investment is quite complicated & if done manually or even with the help of a simple traditional calculator takes up a lot of time.
2. Accuracy: Our online compound interest calculator ensures accuracy, which is very important for a fair view of your investment value.
3. Reliability: Pocketful’s online compound interest calculator is developed by skilled and professional developers. Thus its reliability is in no way near being questioned. The results provided by our online compound interest calculator are highly reliable.
4. Simplification: For people not very comfortable with numbers and calculations. Using online calculators could be a fun and interesting way of understanding the workings of compound interest and seeing how it multiplies your investment.

What are the Components of a Compound Interest Calculator?

The four main components of the compound interest calculator are mentioned below:

1. Principal amount: The principal amount is the initial amount of the investment or the loan of the individual.In the case of simple interest, the interest is calculated on the principal amount. But in the case of compound interest, the interest is calculated on the principal amount by adding the previous interest earned during that period.
2. Interest rate: The interest rate is the cost of borrowing money or the reward for bearing the risk by the lender. It’s the amount of interest due per period as a proportion of the amount lent, borrowed, or deposited. Banks often offer competitive interest rates on home loans, with special concessions for female home buyers.
3. Loan/Investment Tenure: The loan tenure is the period between the loan amount’s disbursement and the closing of the loan or complete repayment of the principal amount along with the interest. The longer the tenure period, the smaller the monthly EMI and the shorter the loan tenure, the larger the monthly EMI.It shows an inverse relationship between the loan tenure period and the EMI amount.
4. Compounding frequency: The compounding frequency is the interval after which the amount gets compounded. Commonly, the compounding frequencies available to individuals from big institutions are yearly, half-yearly and quarterly. While calculating the final amount of the investment we multiply the compounding frequency with the tenure period.

How Does a Compound Interest Calculator Work?

The compound interest calculator works on the formula, which is given below.

A=P(1+R/N)^NT

A	A is the final investment amount.
P	P is the initial principal amount.
R	R is the interest rate.
N	N is the compounding frequency.
T	T is the investment period.

Let’s understand with the help of an example:

Suppose Mr. Sam wants to invest 1,00,000 rupees annually at the rate of 15% p.a. For the next 5 years.

After the end of year 1 Mr. Sam’s final investment amount will be 1,15,000.

After the end of the second year, it will be 1,32,250.

At the end of the third year, it will be 1,52,087.

Now imagine Sam can’t calculate it for every year. Therefore, he can use Pocketful’s online compound interest calculator to know the final investment amount.