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 investments to grow exponentially over time, making it a powerful concept in finance and investing.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of the investment/loan
• \( P \) — Principal investment amount (initial deposit or loan amount)
• \( r \) — Annual interest rate (in 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 an investment will grow over time when interest is compounded at regular intervals.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest is crucial for financial planning, investment decisions, retirement planning, and loan management. It demonstrates the time value of money and helps investors make informed decisions about long-term investments.

4. Using the Calculator

Tips: Enter the principal amount in ₹, annual interest rate as a percentage, select compounding frequency, and time 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 does compounding frequency affect returns?
A: More frequent compounding (daily vs annually) results in higher returns due to interest being calculated on interest more frequently.

Q3: What is the rule of 72?
A: The rule of 72 estimates how long it takes for an investment to double: 72 divided by the annual interest rate gives approximate years to double.

Q4: Can this calculator be used for loans?
A: Yes, the same formula applies to compound interest loans, though most consumer loans use simple interest or different compounding methods.

Q5: How accurate is this calculator for real-world investments?
A: This provides a mathematical estimate. Real-world investments may have fees, taxes, and fluctuating rates that affect actual returns.