Nerdwallet Interest Calculator

Compound Interest Formula:

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

Principal Amount (P):

₹

Annual Interest Rate (r):

Compounding Frequency (n):

Time Period (t):

years

Future Value (A):

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. It allows investments to grow exponentially over time, making it a powerful concept in finance.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

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

Where:

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

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

3. Importance of Compound Interest

Details: Compound interest is fundamental to long-term wealth building. It demonstrates how small, regular investments can grow significantly over time, making it essential for retirement planning and investment strategies.

4. Using the Calculator

Tips: Enter the principal amount in ₹, 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 does compounding frequency affect returns?
A: More frequent compounding (daily vs. annually) results in higher returns due to interest being calculated more often.

Q3: Can this calculator be used for loans?
A: Yes, the same formula applies to compound interest on loans, though loan terms may include additional factors.

Q4: What is the Rule of 72?
A: A quick way to estimate how long it takes for an investment to double: 72 divided by the annual interest rate.

Q5: Are there limitations to compound interest calculations?
A: This calculation assumes a fixed interest rate and doesn't account for taxes, fees, or additional contributions/withdrawals.