Meaning of compound interest

Compound interest is when you earn interest not only on the initial amount invested in any mutual fund, FD, etc. but also on the interest earned over the invested period. You will earn more wealth in the future with this interest-on-interest scheme.

 

Interest compounding can be done on loans, bank deposits, and investments. The interest can be compounded weekly, monthly, quarterly, half-yearly, or yearly, and the higher the frequency, the higher the compound interest and finally the total wealth amount.

 

However, it is true that compounding works wonders and provides a higher wealth amount if you invest in any share, such as an IDFC first bank share. But if you take a loan, such as a credit card loan or any other type of bank loan, the interest amount that has to be paid will also get compounded, resulting in the fact that you end up paying heavy interest on the loan amount if the EMIs are not paid by the due date every month.

 

How to calculate compound interest online?

It might seem interesting to invest in an option that will provide compound interest, but the question arises as to how to calculate the total wealth amount prior to investing in any scheme.

 

Here comes the compound interest calculator, which is an online tool to calculate compound interest online. This calculator will ease out all the mathematical calculations that you would have to do otherwise and will provide the result in a blink of an eye at no cost.

 

Suppose you are investing ₹3,00,000 in a scheme that provides an interest rate of 12% with a lock-in period of five years. Then, the required steps you have to perform on the compound interest calculator to calculate compound interest online are:

 

  1. Firstly, you have to enter the details of the principal amount, which is ₹3,00,000.
  2. Second, you have to enter the details of the rate of interest, which is 12%.
  3. Third, you have to enter the time period of the investment, which is five years.
  4. Lastly, you have to select the compounding frequency from the drop-down list, which can be yearly, quarterly, or half-yearly.

 

The result that the compound interest calculator will provide along with the graphical representation are as follows:

 

  1. The total principal amount is ₹3,00,000.
  2. The total interest amount that can be earned will be ₹2,28,703.
  3. The total value or wealth amount will be ₹5,28,703.

 

 

Suppose you have another investment option having a lock-in period of three years and provides an interest rate of 10%. Then, the results shown by compound interest calculator are:

 

  1. The total principal amount is ₹3,00,000.
  2. The total interest amount that can be earned will be ₹99,300.
  3. The total value or wealth amount will be ₹3,99,300.

 

Hence, you can also use the calculator to compare the different investment options, each having a different investment period and interest rate, and thereby choose the one that matches your investment goals and risk profile.

 

Conclusion

Therefore, to calculate compound interest online without incurring any cost and without the need for financial knowledge, you can use the compound interest calculator. It can be used as many times as you want and will help you strategize investment plans on the basis of results known in advance.