1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows your savings to grow faster over time as you earn interest on both your original investment and the interest that investment has already earned.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of the investment/loan, including interest (₹)
• \( P \) — Principal investment amount (₹)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of times interest is compounded per year
• \( t \) — Time the money is invested or borrowed for, in years

Explanation: The formula calculates how much your investment will grow over time with compound interest, taking into account the compounding frequency.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest is crucial for financial planning, investment decisions, and retirement planning. It helps investors see how their money can grow over time and make informed decisions about savings and investments.

4. Using the Calculator

Tips: Enter the principal amount in Indian rupees, annual interest rate as a percentage, select compounding frequency, and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How often do Indian banks compound interest?
A: Most Indian banks compound interest quarterly, but it varies by bank and account type. Some may compound monthly or annually.

Q3: Are there taxes on interest earned?
A: Yes, interest earned on savings accounts and fixed deposits is taxable as per Indian income tax laws under the head "Income from Other Sources."

Q4: What is the power of compounding?
A: The power of compounding refers to the ability of an investment to generate earnings, which are then reinvested to generate their own earnings, creating exponential growth over time.

Q5: How does compounding frequency affect returns?
A: The more frequently interest is compounded, the higher the effective annual yield, as interest is earned on interest more frequently.