Compound Interest Calculator estimates how your investments will grow over time. You can choose Daily, Monthly, Quarterly or Annual compounding.
Compound interest is a way to calculate the final amount of a loan/deposit based on the starting amount (principal amount) and the accrued interest from a set of time frames. Compound interest is preferred over simple interest because with compounding, the amount which is deposited will increase at a quicker pace.
On the other hand, calculating the compound interest can be tricky and lengthy because of the numerous compounding intervals. To make the process easier, Compound Interest Calculators come into the picture.
This tool will let you enter all the vital information and then use the Formula suited for your equation. It will then present you the possible breakdown of the annual and monthly figures. Based on this, you can see how your investment will change over a while.
This compounding tool is a life-saver for those who don't like dealing with calculations. Since compounding is a critical mathematical aspect used in everyday life, it is not advisable to skip it entirely. That is why Compound Interest Calculators are widely used.
The guidelines to calculate efficiently while using a Compound Interest Calculator are written below. This specific calculator's mechanism is not complex to understand once you have gone through it properly. A few things to keep in mind before using the Compound Interest Calculator.
A – Accrued amount/future amount of the savings/investment
P – Principal/starting savings/investment amount
r - Interest rate (decimal)
n - Total number of times the interest is compounded
t - Time for which the principal amount is invested for
You just need to have a proper grasp of your deposit amount, the transaction's total time, the interest rate, and the compounding period. The Formula that the calculator will use is-> A = P(1+r/n)nt.
First, you need to type in your deposit amount.
The second step is to enter the interest rate (The interest rate can be for any time period such as annually, weekly, or monthly)
Now you need to enter the time period for this amount. It usually is a mix of years and months. It is more convenient to have the same metric while doing the calculation.
Lastly, type in the period of your interest to be compounded.
You can also add in any contributions that might happen on a monthly or annual basis.
Here is a sample question depicting the same to help you understand better how to use a Compound Interest Calculator.
Q) Suppose you started an investment account with Rs. 40,000, which is a span of 3 years, turned to Rs. 45,000. The bank that you go to makes an offer of savings account with weekly compounding (meaning every week of the year- 54 weeks). What should be the savings account's annual interest rate to be at par with the return from the investment account?
A)First, take out your compound Interest Calculator and choose the "Calculate Rate" option. The calculator will automatically use this formula for the numbers you enter -> r = n[(A/P)1/nt - 1] and R = r*100. Moving on, type in the numbers in this sequence.
Accrued amount [Total P+I]: Rs 45,000
Principal: Rs 40,000
Compound [n]: Weekly (54)
Time [years]: 3 years (3 years is 36 months)
The rate [R] should be = 3.928% per year
The principal amount is Rs 40,00, and the compound interest is weekly. Therefore, to get a return from a savings account that is at par with the existing investment account, the interest rate should be 3.928%.
If you want to invest your money or take a loan, understanding how compound interest works is essential. Even if you want to open a savings account, you can decide which bank to deposit your money by simply checking which bank has a better interest rate for the amount you are depositing.
With the help of a Compound Interest Calculator, you can make the comparison at home, minus the hassle.
This compounding tool is easy to use and has a simple interface to minimize any confusion for the user. Finding the principal, final saving/investment value, or even the interest rate will no longer be a scary task with the Compounding Calculator.
That's a wrap on Compound Interest Calculator details. We hope you were able to completely understand the workings of this calculator and use it in your daily life. You can now quickly do calculations that previously took up a lot of time and mental space. For those who don't have a stronghold on mathematics, a compound interest calculator is an excellent tool for making critical financial calculations.