Compound Interest Calculator

Use our online compound interest calculator to quickly determine interest payable on your loans or earnings on your investments.
Our calculators

A compound interest calculator is a great financial tool used to estimate the growth of an investment or the total repayment amount on a loan. It factors in the initial principal, interest rate, compounding frequency, and time. By applying the compound interest formula, these calculators provide precise projections, enabling individuals to make informed financial decisions.

What is compound interest calculator?

A compound interest calculator is a financial tool that determines the interest amount payable on your loan or the potential return on your investment. To use, input the initial amount (principal), the annual interest rate, the investment duration, and the frequency of compounding. The calculator then computes the value, factoring in compounding.  Users can swiftly grasp the impact of varying interest rates or compounding frequencies on their financial outcomes. This user-friendly tool enables individuals to make informed decisions about investments or loans by providing clear insights into the compounding effects of their money over time.

How to use a compound interest calculator?

Using our EMI compound interest calculator is very easy. You just need to follow the below-mentioned steps.

Step 1- Enter the principal amount
You can enter a lump sum principal amount.

Step 2- Enter the expected rate of interest

Here, you will have to enter the expected rate of interest.

Step 3- Enter the tenure

You have to enter the required tenure you wish to calculate compound interest for.

Step 4- Select compounding interval
Here, you will have to enter the compounding frequency: daily, monthly, quarterly, and yearly.

Once you’ve entered all three variables in the calculator, The calculator will display the results within seconds.

What is compound interest?

Compound interest is the interest calculated on the initial principal and accumulated interest from previous periods. Compound interest meaning Unlike simple interest, it grows exponentially, as each interest payment contributes to the principal for subsequent calculations. This compounding effect allows investments or loans to grow or accumulate faster over time. Compound interest's exponential growth arises from reinvesting earnings back into the principal amount, thereby accelerating the growth curve of investments or debt balances. This compounding effect amplifies returns or liabilities over time, illustrating the powerful nature of sustained growth through reinvestment.

The concept of compound interest is fundamental in understanding long-term financial planning. It incentivizes early investment and disciplined saving habits by showcasing how even modest contributions can escalate into substantial sums over extended periods. Conversely, for borrowers, compound interest underscores the importance of timely repayment to minimize the overall cost of borrowing.

Moreover, compound interest aligns with broader economic principles, demonstrating how capital can be appreciated through strategic allocation and time. This insight is crucial for investors navigating volatile markets or individuals managing debt in fluctuating economic climates.

Compound interest formula and steps to calculate compound interest

The compound interest formula calculates the growth of an initial principal amount over time, accounting for the compounding of interest.

The compound interest formula is:

A = P (1+r/n)nt

where:

A

The amount of money accumulated after n years, including interest.

P

The principal amount (the initial sum of money).

R

The annual interest rate (decimal).

N

The number of times that interest is compounded per year.

t

The number of years for which the money is invested or borrowed.


Below are the steps to calculate compound interest:

  1. Determine the principal amount (P).
  2. Identify the annual interest rate (r).
  3. Decide on the number of times interest is compounded per year (n).
  4. Specify the number of years the money will be invested or borrowed (t).
  5. Plug these values into the formula and compute A.

This formula reveals how compounding frequency and time impact the growth or accumulation of money, providing a clear path to forecast financial outcomes accurately.

How to calculate monthly compound interest?

To calculate monthly compound interest in a compound calculator, use the formula: A = P(1 + r/n)^(nt), where A is the future value, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years. Adjust variables in the monthly compound interest calculator accordingly for monthly calculations. Use the compound calculator and get results instantly.

How to calculate daily compound interest?

To calculate daily compound interest, use the formula in the daily compound interest calculator: A = P(1 + r/n)^(nt), where A is the future value, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per day, and t is the number of days. Adjust variables in the compound calculator for daily compounding for daily calculations. Use the compound calculator and get the results in no time.

Additional read - Difference between simple interest and compound interest

How does compound interest work?

Compound interest functions differently in investments and loans but shares the same underlying principle of exponential growth or accumulation over time.

In investments, compound interest allows earnings to generate additional earnings. As the invested principal and any accrued interest compound, the total value of the investment grows exponentially. This compounding effect is advantageous for long-term investors, as even small initial investments can grow significantly over extended periods, thanks to the power of compounding.

Conversely, in loans, compound interest causes debt to accumulate more quickly over time. Each interest payment contributes to the principal, resulting in higher interest charges in subsequent periods. This mechanism emphasizes the importance of timely repayment to reduce the overall cost of borrowing.

Understanding compound interest is crucial for both investors and borrowers. It underscores the benefits of early investing and disciplined savings habits while cautioning against accumulating high-interest debt.

Compound interest example

Suppose you borrow Rs. 10,000 at an annual interest rate of 5% compounded annually for 3 years. Using the compound interest formula, here's how to calculate compound interest with an example:

A=P(1+nr​)nt

P is principal, I is the interest rate, n is the number of compounding periods.

  • P=10,000 (principal amount)
  • r=0.05 (annual interest rate)
  • n=1 (compounded annually)
  • t=3 (years)

Plugging in these values in the compound interest equation:

A= 10,000(1+10.05​)1×3

A = 11,576.25

After 3 years, the loan amount grows to approximately Rs. 11,576.25 due to compound interest.

Year

Investment (Rs.)

Interest (Rs.)

At maturity (Rs.)

1

10,000

500

10,500

2

10,500

525

11,025

3

11,025

551.25

11,576.25


How can a compound interest calculator help you?

A compound interest calculator simplifies financial planning by swiftly computing the growth of investments or debt over time. By inputting variables such as the principal amount, annual interest rate, compounding frequency, and investment duration, users can predict future balances accurately. This tool is invaluable for comparing investment options, strategizing retirement savings, or evaluating loan terms. It provides a clear visualisation of how small changes in interest rates or compounding intervals impact long-term financial outcomes. Additionally, compound interest EMI calculator promotes financial literacy by illustrating the benefits of early investing and the consequences of accumulating high-interest debt. Overall, they empower individuals to make informed decisions, optimising their financial strategies to achieve their goals efficiently.

Power of compounding

The power of compounding refers to the exponential growth of an investment or debt over time. As earnings or interest accumulate, they are added to the principal, resulting in larger returns or higher debt balances. This compounding effect accelerates wealth accumulation in investments, where reinvested earnings generate additional earnings. Conversely, in loans, it causes debt to grow faster as each interest payment adds to the principal amount. The key to maximising the power of compounding lies in starting early and maintaining consistency in investing or repaying debts. Over extended periods, even small contributions or payments can lead to substantial financial gains or liabilities, emphasising the importance of long-term financial planning and disciplined financial habits.

Advantages of using compound interest calculator

Using our compound interest loan EMI calculator ensures seamless functionality, delivering swift and precise interest calculations that support effective financial planning. This tool empowers users to transparently evaluate personal loan terms and make informed decisions. Here are several compelling reasons why you should utilise an online compound interest calculator for loan:

  1. Accurate projections: Obtain precise forecasts of loan growth over time, facilitating informed financial planning and helping users anticipate future financial obligations confidently. By inputting variables such as principal amount, interest rate, compounding frequency, and duration, users can visualize how loans will evolve over the years.
  2. User-friendly interface: Ensure accessibility for users with varying levels of financial expertise through an intuitive and easy-to-navigate design. Our calculator simplifies complex calculations into straightforward inputs, making it accessible for anyone seeking to understand the financial implications of loans.
  3. Quick comparisons: Facilitate swift comparisons between different loan scenarios, enabling users to evaluate various options efficiently. This feature allows users to adjust parameters like interest rates or repayment terms to see how they impact total interest paid or loan payoff timelines.
  4. Real-time calculations: Eliminate the need for manual computations by providing instant results, saving time and reducing the risk of errors. Users can rely on accurate calculations to make timely financial decisions without the need for extensive mathematical proficiency.
  5. Comprehensive insights: Empower users with a holistic understanding of compound interest dynamics, enhancing overall financial management capabilities. By visualizing how compound interest affects loans over time, users can strategize effectively to minimize costs or maximize returns.
  6. Reliable results: Provide users with dependable and trustworthy financial insights essential for effective long-term financial planning. Our EMI calculator for compound interest ensures that users can rely on accurate projections and data-driven decisions to achieve their financial goals with confidence.

Using our compound interest calculator equips users with the tools needed to navigate complex financial landscapes, offering clarity and empowerment in managing loans and investments effectively. Whether planning for major purchases, comparing financing options, or optimizing debt repayment strategies, our calculator facilitates informed decision-making tailored to individual financial objectives.

Difference between simple and compound interest

Criteria

Simple interest

Compound interest

Calculation basis

Calculated only on the initial principal amount.

Calculated on the principal and accumulated interest.

Interest growth

Linear and predictable.

Exponential and potentially higher over time.

Best for

Short-term loans and straightforward investments.

Long-term investments to maximise returns.

 

Simple interest is calculated only on the initial principal amount, making it easier to predict and manage. In contrast, compound interest is calculated on the principal amount and the accumulated interest over previous periods, leading to exponential growth. This distinction significantly impacts the total interest paid or earned over time.

Frequently asked questions

Can I include regular withdrawals with compound interest?

Most compound interest calculators focus on fixed investments, but for scenarios with regular withdrawals, you may need a more sophisticated financial calculator or software. Consider consulting a financial advisor or using specialised tools that account for ongoing contributions or withdrawals to get accurate projections for your specific financial situation.

How is compound interest calculated?

Compound interest is calculated using the formula: A = P (1 + r/n)^(nt), where A is the future value of the investment, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years the money is invested.

How does compound interest differ from simple interest and what are the formulae for both?

Simple interest is calculated only on the initial principal amount, whereas compound interest considers the interest accrued on both the initial principal and the accumulated interest from previous periods. Below is the formula for simple interest and compound interest:

Simple interest - I=P×r×t

Compound interest - A=P(1+nr​)nt

What is the difference between APR and APY?

APR (Annual Percentage Rate) represents the actual yearly cost of funds over the term of a loan, including any fees or additional costs. APY (Annual Percentage Yield), on the other hand, reflects the total amount of interest earned or paid on an account, based on the interest rate and the frequency of compounding within a one-year period.

Read more on APR vs APY

Can a compound interest calculator be used for loans as well?

Yes, compound interest calculators can be used for both loans and investments. For loans, you input the loan amount, interest rate, compounding frequency, and the loan tenure.

Can compound interest calculators be used for fixed Interest rates?

Yes, compound interest calculators are suitable for fixed interest rates as well. Whether it's a savings account, loan, or investment with a consistent interest rate, these calculators accurately determine future values by compounding the fixed rate over time. They're valuable tools for various financial planning scenarios with stable interest rates.

Can a compound interest calculator help determine the best loan option?

Yes, a compound interest calculator can compare different loan options by calculating the total repayment amount, helping borrowers choose the most cost-effective loan based on their financial situation.

Is the interest rate the only factor affecting loan repayment?

While interest rate significantly impacts loan repayment, the frequency of compounding and the loan terms also play crucial roles. Longer tenure can also lead to increased total repayment amounts.

What is RoR/TWR?

RoR (Rate of Return) and TWR (Time-Weighted Return) are financial metrics used to evaluate investment performance. RoR measures gains or losses over a specific period, while TWR eliminates the impact of cash flows, providing a clearer picture of investment performance over time, especially for portfolios with multiple contributions or withdrawals.

Can I include regular withdrawals with compound interest?

Most compound interest calculators focus on fixed investments, but for scenarios with regular withdrawals, you may need a more sophisticated financial calculator or software. Consider consulting a financial advisor or using specialised tools that account for ongoing contributions or withdrawals to get accurate projections for your specific financial situation.

How can I calculate interest?

You can calculate your interest using our interest calculator online.

Show More Show Less

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.