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## What is Compound Interest?

Compound interest is the interest on interest. The interest you earn on the deposit will be reinvested instead of paying it out. In simple terms, if you have investment Rs.100000  for 3 years and you will get a compounding benefit every quarter, then your money will be reinvested every quarter with an earned interest in last months.

Suppose interest rate of your investment is 12% p.a, you will receive 1% monthly interest on Rs.100000 in the initial three months of your investment. After thee months (Quarter), you investment will be reinvested will the earn interest (Rs.100000 + 3000) and you will starting receiving 1% monthly interest on Rs. 103000, after two quarters interest will be occur on Rs.106003 and It will go on until the maturity.

## What is Compound Interest Calculator?

Compound interest Rate enable your investment to grow more over a particular time period. Compound interest calculator shows how an investment grows with time at a compound interest rate. Daily, Weekly, Monthly, Quarterly, Semi-Yearly and Yearly compound interest can be calculated with the help of this calculator. You just need to fill out these inputs for correct calculation; principal amount, interest rate, Period for which the money is invested, and frequency of compound interest.

## How is Compound Interest Calculator Work?

Compound Interest Calculator follows this below standardised Formula to compute the total compound interest:

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

• A  = Compound Interest
• P = Principal Amount
• R = Rate of Interest
• N = Number of times interest compound in a year
• nt = Number of years

### Example of Compound Interest Calculation

Suppose you have invested Rs. 20000 for 5 years. You earn 10% interest on your investment and your interest gets compounded annually.

So, in the first year you earn Rs.20000 on your investment of Rs.200000. In the second year, your principal amount changes to Rs.220000. You now earn Rs.22000 as interest on your new principal amount, so you now have a total of 220000 + 22000 = 242000. By using the above formula, you can easily understand the calculation of the coming years.

A = 200000 (1 + 10/1) ^ 5 = 322000

## How to Calculate Compound Interest?

Compound interest for various frequencies like Monthly, Quarterly, Semi-yearly and Yearly can be calculated. Example is below:

### How to calculate Monthly Compound Interest

You can calculate Monthly compound interest by using following formula.

Formula= A = P (1 + R/N) ^ nt

Where:

• A is the final amount
• P is the principal amount
• r is the annual interest rate (decimal)
• n is the number of times interest is compounded per year (12 for monthly)
• t is the time in years

Example: For a principal of Rs.1,000, annual interest rate of 6% (0.06), over 3 years:

?=1000(1+0.0612)12×3=1000(1.005)36= 1196.68

A compound interest calculator is an essential tool for anyone looking to understand and maximize their savings and investments.

• Accurate Projections: Quickly determine how much your investment or savings will grow over time with precise calculations, taking into account the principal amount, interest rate, and compounding frequency.
• Financial Planning: Use the calculator to plan for future financial goals, such as retirement, education, or major purchases, by estimating how much you need to save or invest to reach your target amount.
• Comparison of Investment Options: Compare different investment opportunities by inputting various interest rates and compounding periods to see which option offers the best returns.
• Understanding Compounding Effects: Visualize the power of compound interest and how even small increases in interest rates or time horizons can significantly impact your total returns.
• Budgeting and Saving Strategies: Adjust your savings plan by seeing how different monthly contributions affect your long-term savings, helping you create a more effective budget.
• Customizable Scenarios: Experiment with different scenarios by changing variables like the initial amount, interest rate, and time period to see a range of possible outcomes.
• Motivation to Save: Seeing potential growth can encourage you to save more and stick to your financial goals, knowing the benefits of compound interest.
• Easy Accessibility: Many online calculators are user-friendly and free, making it easy to get quick and accurate information without needing advanced financial knowledge.

## How to use the ClearTax Compound Interest Calculator?

Steps to use the compound interest calculator:

• First, select the compounding frequency as daily, weekly, quarterly, semi-annually, or annually.
• You must enter the principal amount.
• Then choose the rate of interest and the period in days, weeks, months, quarters, or years.
• The ClearTax Compound Interest Calculator will show you the earned compound interest on the deposit.

## Advantages of Compound Interest Calculator

• Compound Interest Calculator India is easy to use and shows the compound interest on deposits in seconds.
• The calculator helps you set and achieve financial goals. You get to know the interest amount you earn on the deposits.
• You may use the calculator to check multiple scenarios. You can tweak the interest rates, investment duration and the investment amount to compare the return from various investments.

## Difference Between Simple Interest and Compound Interest

• Simple interest is calculated on the principal or original amount.
• Compound interest is calculated on the principal amount and the accumulated interest of previous time before compounding frequency, and thus can be regarded as “interest on interest.

Formula of Simple interest = (P × T × R) ⁄ 100

• P= Principal Amount
• T= Term of Deposit
• R = Rate of interest

Formula of the Compounding Interest = P (1 + R/N) ^ nt

• A  = Compound Interest
• P = Principal Amount
• R = Rate of Interest
• N = Number of times interest compound in a year
• nt = Number of years

### Example of Simple interest and Compounding interest

If, Rs.10000 will be deposited for 5 years at a Simple interest rate of 8% p.a, so the maturity amount will be Rs.140,000. If we apply the same condition only the interest will be compounded with yearly frequency, so the maturity amount will be Rs.1,46,932.

Is Compound Interest Calculator easy to use?

You can use the Compound Interest Calculator from the comfort of your home. It is an easy to use tool where you enter the compounding frequency, principal amount, interest rate and the period. The ClearTax Compound Interest Calculator shows the interest you earn on the deposit in seconds.

Compound Interest Calculator shows you the compound interest that you earn on investments. It helps to choose the right investment tool, period for your investment and make your financial planning better.

What is Daily, Monthly, Quarterly and Yearly compounding?

Daily, monthly, quarterly, and yearly compounding refer to how often interest is calculated and added to the principal. Daily compounding adds interest daily, maximizing returns. Monthly compounding adds interest every month, while quarterly compounding does so every three months. Yearly compounding adds interest annually. The more frequent the compounding, the higher the effective interest rate and the greater the potential returns on the investment.

How can i calculate compound interest?

You can calculate compound interest with this Formula: (A = P (1 + R/N) ^ nt). But manual calculation could go wrong and it takes more time. Thus, you can use online Compound Interest Calculators to compute interest on investment and savings.

Why is compound interest so powerfull?

Under compound interest, you earn interest over interest. You earn returns on your investment and on your investment returns which have been earned during the previous period. It also offers compounding frequency, higher frequency gives higher returns.  For example, an investment that offers daily compounding interest earns more than an investment that offers quarterly compounding interest.

Where are Compound Interest Investment options?

There are many investment options which provide compounding interest. You can choose according to your investment goal and risk tolerance appetite. Here are some of them Mutual Funds, Certificate of Deposit, Stocks, Bonds, FD, RD, and etc.

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