Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics.
The nature of compound interest makes it extremely lucrative for businesses. When you use a compound interest calculator online, you can avail the following benefits.
1 It helps you determine an accurate figure and percentage of returns over a certain time frame.
2 A reliable calculator helps you identify how much investment you might need over a time frame. The required corpus of funds can then be arranged with convenience.
3 Groww offers you a customizable compound interest rate calculator which helps you assign values based on your requirements.
4 A compound interest calculator helps calculate the total returns as well as yearly returns in case you need to consider breaking such an investment as per your future financial planning. If so, it is also advisable to consider pre-closure charges of the investment corpus.
5 To keep deposit rates in line with the market, the Indian Government decided to annualize the interest rates on National Savings Certificates. The changes were effected in 2016. To determine how much your savings schemes now work, you must use an online calculator.
Groww provides you with an accurate compound interest calculator for unlimited use. Groww is ideal for daily use thanks to
1 Ease of use.
2 Reliability and accuracy.
3 Data security.
Besides the compound interest calculator, you can also use a wide range of other calculators as seen below. Each one of our calculators is benchmarked against the best in the business and is ideal for everyday use.
Compound interest can be calculated with a simple formula.
Compound Interest = Total amount of Principal and Interest in future (or Future Value) less Principal amount at present (or Present Value)
Compound Interest = P [(1 + i) n – 1]
P is principal, I is interest rate, n is number of compounding periods.
An investment of Rs 1,00,000 for 5 years at 12% rate of return compounded annually is worth Rs 1,76,234. From the graph below we can clearly see how an investment of Rs 1,00,000 has grown in 5 years.
When it comes to investing, it’s always a good idea to choose an investment avenue that allows you to enjoy compounded interest. This is the most efficient way to maximise your returns and get the most out of your money. There are a number of investment opportunities today where you can benefit from plans that compound interest at regular intervals. At the most basic level, banks offer compound interest. The interest you earn every 6 months is added to your savings, and for the next six month, you can earn interest on the new amount. But this is hardly enough to help you achieve your financial goals. Mutual funds and Unit-Linked Insurance Plans (ULIPs) are two of the most common investments that utilise compound interest formulae to grow your money. Both investment avenues work in a similar fashion, with the main difference being that ULIPs offer the additional benefit of life cover. Compound interest investment plans are especially useful in planning your finances for your retirement.
A simple interest calculator is a utility tool that calculates the interest on loans or savings without compounding. You may calculate the simple interest on the principal amount on a daily, monthly, or yearly basis. The simple interest calculator has a formula box, where you enter the principal amount, annual rate, and period in days, months, or years. The calculator will display interest on the loan or the investment.
Compound Interest has proven the better tool for investment but it can very dangerous if it’s applicable to your loan amount. You will end up paying more interest on your loan amount.
Compounding becomes more effective when your investment is either monthly or quarterly instead of annually because it gives a better return. If you are borrowing money from any of the bank or financial institution than annual compounding is the best option. When you are lending a certain amount of money then daily compounding will be more productive. But we should keep in mind, compounding can favorable or unfavorable depend upon the circumstances.
Compound interest gives a better return on your investment, depends upon the tenure and size of the investment. Compound interest grows faster more than your expectations.
The Benefits of Compound Interest are Listed below:
1 Reinvestment
2 Better Return on your Investment.
3 Long Term Savings.
4 Increased Earnings.
1. If you want an estimation of how much your investment will yield, you can always click on our compound interest calculator for an accurate estimate.
2. Our online compound interest calculator is customized so that you can make inputs as per your own requirements. So you have the ease of choosing the amount or the rate of the interest as you are charged and calculate your interest accordingly.
3. While compound interest is great when you are investing and making daily savings, it can get quite expensive when you are charged compound interest. This can get really tricky especially if you have a credit card. If you let your bills mount, you have to pay a really hefty bill, owing to the high interest rates. So be careful with your payments and do not let your bills mount.
4. The potential of compound interest is enormous. If you make an investment which generates a compound interest of 6% per year, it will double in a 12-year period while it has the potential to grow fourfold in 24 years.
5. While initially, it might seem to you that the sum earned is nothing significant, even if you earn an interest of 5% which is compounded each month, you will stack up an impressive amount after 10 years, even without adding anything extra to it!
6. The best part about the beauty of compound interest is that you do not have to be a financial analyst to understand how to earn it. If you invest wisely and make little sacrifices by depositing money in your savings account, it will ultimately add up. Also, remember that when you are investing, it is better if the amount compounds quarterly instead of annually, for the best benefits.
7. In India, the Ministry of Finance has taken the decision to annualise the compound interest for the National Saving Certificate( NSC) for 10 year and 5 year periods. This has become applicable from April 1, 2016. Alongside it, the government has taken the decision to slash interest rates on post office schemes for the short term. This measure has been taken to keep the interest rates in sync with the market rates.
Now that you understand the significance of compound interest and how it is calculated, you can use the compound interest calculator to know how much you are earning on your investments or even to know how much your credit card company will charge you for your outstanding bill. So if you haven’t already started investing, it is time you did to capitalize on the power of compounding to enhance your wealth!
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Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics.
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