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Compound Interest Calculator

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What is Compound Interest (CI)?

Compound interest is essentially the interest earned on the initial principal as well as the accumulated interest from previous periods. This is different from simple interest, which is calculated solely on the principal invested. Compound interest, on the other hand, is interest on interest. This leads to exponential instead of linear investment growth and results in potentially faster wealth creation.

What is a Compound Interest Calculator? 

A lumpsum calculator is an online financial tool that helps you understand how a large sum invested today may grow over a certain period, at a specific rate of returns. It is useful for investors who want to get a better idea of how their investment may pan out over the medium term or long term. 

 

The lumpsum investment calculator is also free of use. So, you can use it several times at no extra cost to compare and assess how a change in the amount invested, the rate of returns or the investment tenure may affect the total future value of investments. Each time, the calculator displays the estimated results instantly. 

How to Use the Compound Interest Calculator Online Effectively? 

Using an online compound interest calculator is fairly easy, even if you are a beginner. Here is what you need to do to use this online tool.

 

  • Step 1: Enter the amount that you wish to invest today.
  • Step 2: Enter the rate of compound interest per annum.
  • Step 3: Enter the period of investment.
  • Step 4: Enter the frequency of compounding. 

 

After you enter these details, you need to submit them online. The compound interest calculator will then display the total interest you will earn on the invested amount and the maturity value at the end of the period.

How Does the Bajaj Broking Compound Interest Value Calculator Work?

The Bajaj Broking compound interest calculator is an easy-to-use online financial planning tool that helps you understand how much interest you will earn on an investment. It works based on the inputs you provide. To use this CI calculator, you need to enter the following information:

  • The principal amount invested
  • The annual rate of compound interest
  • The investment duration
  • The frequency of compounding

 

With these inputs, the Bajaj Broking compound interest calculator uses the compound interest formula shown below to arrive at the results:

 

CI = P [(1 + r/n)nt — 1] 

Where: 

  • CI is the compound interest
  • P is the initial amount invested
  • r is the annual interest rate expressed as a decimal
  • n is the number of times the interest is compounded per year
  • t is the period of investment in years

How to Calculate Compound Interest?

You can use the compound interest formula to manually compute the interest. For instance, say you have invested Rs. 1,00,000 at an annual interest rate of 5%, compounded quarterly, for 3 years. Plugging these details into the formula, we have the following.

 

Compound interest:



= P [(1 + r/n)nt — 1]

 

= Rs. 1,00,000 [(1 + 0.05/4)4 x 3 — 1]

 

= Rs. 1,00,000 [(1 + 0.0125)12 — 1]

 

= Rs. 1,00,000 [1.1608 — 1]

 

= Rs. 1,00,000 x 0.1608

 

= Rs. 16,080 (approximately)

 

 

To avoid any errors in manual computation and obtain instant results, you can rely on the Bajaj Broking compound interest calculator. 

What are the Benefits of Using the Compound Interest Calculator?

Using a compound interest calculator gives you the following benefits:

 

  • Instant Results: Most online compound interest calculators give you instant results. So, by simply entering the details needed, you can get accurate projections of the compound interest almost immediately.
  • Easy Comparison: With this online tool, you can also easily compare different investments and scenarios. All you need to do is change the investment amount, interest rate and/or tenure to see how the maturity amount changes.
  • Free and Easily Accessible: Compound interest calculators are typically available for free online. You can use them as many times as you need without any cost, making them an accessible tool for everyone.
  • Financial Planning: With a compound interest calculator, financial planning also becomes easy. You can use the tool to not only assess investments but also to evaluate loans and other financial products and choose the most cost-effective option.

The Difference Between Simple Interest and Compound Interest

The main difference between simple interest and compound interest lies in how the interest is earned. Simple interest is only earned on the principal amount. However, compound interest is earned on the accumulated interest as well. In addition to this, simple interest and compound interest differ in the following ways.

 

  • Growth Pattern: Simple interest offers linear growth but compound interest offers exponential growth.
  • Compounding Frequency: There is no compounding in simple interest. However, in CI, compounding may occur daily, weekly, monthly, quarterly, semi-annually or yearly.
  • Use Cases: Simple interest may be suitable for short-term investments and some loans. Compound interest is more common in savings accounts and long-term investments. 

Examples of Simple Interest and Compounding Interest

Say you invest Rs. 1,00,000 at 5% simple interest per annum, your annual interest earnings will be Rs. 5,000. This interest will remain constant throughout the investment tenure.

 

However, if the same amount is invested at 5% compound interest per annum, compounded annually, you will earn Rs. 5,000 in the first year. This interest will be added to the principal and the CI for the second year will be computed on Rs. 1,05,000 (i.e. principle + first year’s interest). So, in the second year, you will earn Rs. 5,250. In this manner, the interest earned increases each year. 

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Frequently Asked Questions

Is it easy to use a compound interest calculator?

Answer Field

Yes, a compound interest calculator is extremely user-friendly. All you need to do is submit the details required and the calculator will show you the total interest and the maturity value.

What is the meaning of compound interest on investments?

Answer Field

Compound interest on investments refers to the interest earned not only on the initial investment but also on the interest accumulated from the previous period. In other words, it is the interest earned on interest.

Can I use a CI calculator to find the monthly returns from my National Savings Certificate (NSC) investment?

Answer Field

The National Savings Certificate scheme offers interest that is compounded annually. So, you can use a compound interest calculator to find the returns from your NSC investments. 

How can I use a compound interest calculator to choose an investment?

Answer Field

You can use a CI calculator to find the compound interest from different investments. Then, you can choose the options that give you the maximum returns on your capital. 

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