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Compound Interest Calculator

What is Compound interest?

We have seen Simple Interest and how it worked. By the name suggest, that was simple. Similarly here in compound interest, the interest is complex or compounded. In simple words, compound interest is nothing but interests on interest. Here the interest is calculated over the previous interest formed over the principal.

Formula Of compound interest:

Formula for Compound Interest : P ( 1 + (R/Nx100))^(T x N) – P

To make you understand well, let’s take an example: Suppose Mr. Tejas has invested/deposited in a bank or any asset, the invested amount is only 1,000Rs for 10 years on the condition that the deposit would be compounded annually with the rate of interest be 15 %.

So, what do you think that how much would Mr. Tejas get after 10 years??

If we calculated the deposit of Mr. Tejas from simple interest format, then the return would be:

Simple Interest = (Principal x Rate Of Interest x Time period)/ 100 => (1000 x 15 x 10)/100 => 1500Rs

So, we can see that after 10 years, with simple interest over all the given conditions Mr Tejas would get a interest of 1,500Rs and the total value would be Principal amount + Interest = 1,000 + 1,500 = 2,500 Rs.

Now Let’s calculate the interest for the all same conditions, just the method would be compounding.

Where P: Principal Amount , R: Rate of Interest , N: Number of times compounded annually , T: Time Period

**Of course, here we added 100 below rate of interest because it is in percentage

Let’s calculate: 1000(1+(15/100*1)^(10*1) – 1000 = 3,046

SO, Mr. Tejas would get a return of 3,046Rs as interest and the total value would be 4,046Rs.

Generally banks/investment instruments use Compound Interest (CI) for long term deposit or investment, they use Compound Interest !! We have learnt about Simple Interest and also have simple interest calculator on our website.

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