Interest Calculator On Investment Return

Compound Interest Formula:

\[ A = P \times (1 + \frac{r}{n})^{n \times t} \]

Principal Amount (P):

₹

Annual Interest Rate (r):

Time (t):

years

Compounding Frequency (n):

Future Value (A):

Total Interest Earned:

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1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. It's often called "interest on interest" and makes a sum grow at a faster rate than simple interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times (1 + \frac{r}{n})^{n \times t} \]

Where:

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

Explanation: The formula calculates how much an investment will grow over time when interest is earned on both the initial principal and the accumulated interest.

3. Importance of Compound Interest

Details: Compound interest is a powerful concept in finance that allows investments to grow exponentially over time. It's the foundation of long-term wealth building and retirement planning.

4. Using the Calculator

Tips: Enter the principal amount in ₹, annual interest rate as a percentage, time in years, and select the compounding frequency. 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 the principal plus any accumulated interest.

Q2: How does compounding frequency affect returns?
A: The more frequently interest is compounded, the higher the total return will be, as interest is earned on interest more often.

Q3: What is the Rule of 72?
A: The Rule of 72 is a simple way to estimate how long an investment will take to double: Divide 72 by the annual interest rate.

Q4: Can this calculator be used for loans?
A: Yes, the same formula applies to compound interest on loans, though the result would represent the total amount owed.

Q5: Are there investments that offer daily compounding?
A: Yes, many savings accounts and certain investments compound interest daily, which can significantly increase returns over time.