A compound interest calculator is an online tool that helps you calculate the compound interest you will earn on your investment. It also shows you the maturity value of your investment.

The manual computation of compound interest can be labor-intensive as you will have to calculate interest on the principal and interest amounts for every year.

A CI calculator makes it easier to calculate compound interest so that you don’t need to calculate it manually. You just have to enter the invested amount, rate of return, and period, and the calculator will tell you the maturity value.

Also, if you have a target corpus you’re aiming for, you can tweak the interest rate or the principal to see its impact on the maturity value.

ET Money’s compound interest calculator is fairly easy to use. Here are the steps to use the tool:
Step 1- Enter Investment Amount
You can enter a lump sum or monthly investment amount.

Step 2- Enter Expected Rate of Return
Here, you will have to enter the expected rate of return on the investment.

Step 3- Select Compounding Interval
Here, you will have to select the compounding frequency from the given options: Monthly, Quarterly, and Yearly.

Once you’ve entered all three variables in the calculator, it will automatically calculate the total gains and total corpus that you’ll accumulate by the end of the tenure.

Compound interest calculates interest on the principal and interest components. It starts with when your investment starts earning interest. Then, this interest is added to the principal, and in the next period, interest is calculated on this combined balance.
This process continues yearly, and you earn interest on the combined balance of principal and earned interest. Hence, in the long term, you can generate more wealth due to the power of compounding.
Compounding interest is affected by two factors: Rate of return and Investment period:

• The rate of return is positively related to the compound interest. The higher the interest rate, the more you will accumulate in your investment period.
• The investment period is also positively related to compound interest. The higher the investment period, there will be more compounding, and it will give more time for your investment to grow. With each compounding cycle, the base for computing interest grows larger, resulting in a snowball effect. The interest earned accumulates at a quick pace over time.

In conclusion, compound interest can work in your favour while investing, allowing your money to grow over time. Starting early allows your investments more time to compound, maximising your returns. Conversely, in the case of debt, compounding interest will result in higher interest payments in debt, which will increase your financial burden.

The compound interest formula is simple and involves four variables P,R,N,n. The P in the formula stands for the principal amount of the investment, and R stands for the interest rate. The N in the formula stands for the total number of times the interest is compounded ,and n stands for compounding frequency per year.

Compound Interest Calculator Formula:

Where:

P = Principal amount

R = Rate of interest

N = Total compounding frequency for the entire period;

       N = n x T

n = Compounding frequency per annum

T= The time period in a number of years

Example for Compound Interest Calculation:

Now that you know the compound interest formula let’s use it to calculate compound interest. Say you’ve invested ₹5,00,000 in a Fixed Deposit that compounds interest quarterly. The Fixed Deposit offers a 5% p.a. rate of return, and you keep the amount invested for 5 years.

Let’s identify the values of the variables we need and then plug those values into the compound interest formula.

• Principal (P) = ₹5,00,000
• Rate of interest (R) = 0.05 (or 5%)
• Compounding frequency per annum (n) = 4
• Total compounding frequency (N) = 20 (i.e., 5 years x 4 times/year)

Therefore, total compound interest earned:

The power of compounding has been said to be phenomenal by the likes of Warren Buffet. What’s important though, is to realise that the power of compounding works in your favour when you earn compound interest, but not when you’re the one paying it. To that point, you can leverage the power of compounding by investing in a range of assets, including mutual funds, fixed deposits, or even PPF.

For instance, consider an equity mutual fund investment worth ₹1,00,000 per annum. Assuming it returns 10% p.a., your investment will grow to the following amounts over different periods:

Over 20 years, your value of investment will more than triple vis a vis the invested amount — and that’s the power of compounding.

• ET Money’s compound interest calculator helps you calculate the compound interest you’ll earn on your investment with a single click.
• ET Money CI calculator can help you assess how compound interest can grow your money faster than simple interest.
• The ET Money compound interest calculator enables you to calculate the interest taking into consideration the invested amount and the interest earned on it , while the simple interest calculator simply calculates interest on the invested amount.
• ET Money’s Online Compound interest helps you to calculate the total returns as well as monthly, quarterly, and yearly returns.

• Reliability: ET Money’s CI Calculator is known for its reliability, as it utilizes accurate mathematical formulas to calculate compound interest, ensuring dependable results.
• Data security: ET Money’s CI Calculator adheres to data protection regulations and industry standards, further ensuring the security of user data.
• User-Friendly Interface: ET Money’s CI Calculator offers an user-friendly interface, and simplifies the process of inputting your financial data, ensuring that users can easily calculate compound interest with a single click.
• Clear Results: The calculator provides clear and understandable results, allowing users to comprehend the growth of their money over time.

The conceptual difference between simple interest and compound interest lies in the amount on which the interest is earned. However, there are several other differences between them.