The rate at which you borrow or lend money is called the simple interest. If a borrower takes money from a lender, an extra amount of money is paid back to the lender. The borrowed money which is given for a specific period is called the principal. The extra amount which is paid back to the lender for using the money is called the interest. Show You calculate the simple interest by multiplying the principal amount by the number of periods and the interest rate. Simple interest does not compound, and you don’t have to pay interest on interest. In simple interest, the payment applies to the month’s interest, and the remainder of the payment will reduce the principal amount.
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A simple interest calculator is a utility tool that calculates the interest on loans or savings without compounding. You may calculate the simple interest on the principal amount on a daily, monthly, or yearly basis. The simple interest calculator has a formula box, where you enter the principal amount, annual rate, and period in days, months, or years. The calculator will display interest on the loan or the investment.
The simple interest calculator will show the accrued amount that includes both principal and the interest. The simple interest calculator works on the mathematical formula: A = P (1+rt) P = Principal AmountR = Rate of interestt = Number of years A = Total accrued amount (Both principal and the interest) Interest = A – P. Let’s understand the workings of the simple interest calculator with an example. The principal amount is Rs 10,000, the rate of interest is 10% and the number of years is six. You can calculate the simple interest as: A = 10,000 (1+0.1*6) = Rs 16,000. Interest = A – P = 16000 – 10000 = Rs 6,000.
The ClearTax Simple Interest Calculator shows you the simple interest you have earned on any deposits. To use the simple interest calculator:
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Find out how much interest you’ll earn with our Term Deposit Calculator. Decide on your investment term (how long you’d like to put away your money), enter your deposit amount (how much money you’d like to invest) and enter the correct interest rate. Our Term Deposit Calculator shows you smart ways to invest your money. Put your money away, knowing that your investment will earn great interest.
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The power of compounding grows your savings faster 3 minutes
The sooner you start to save, the more you'll earn with compound interest. Compound interest is the interest you get on:
For example, if you have a savings account, you'll earn interest on your initial savings and on the interest you've already earned. You get interest on your interest. This is different to simple interest. Simple interest is paid only on the principal at the end of the period. A term deposit usually earns simple interest. Save more with compound interestThe power of compounding helps you to save more money. The longer you save, the more interest you earn. So start as soon as you can and save regularly. You'll earn a lot more than if you try to catch up later. For example, if you put $10,000 into a savings account with 3% interest compounded monthly:
Compound interest formulaTo calculate compound interest, use the formula: A = P x (1 + r)n A = ending balanceP = starting balance (or principal)r = interest rate per period as a decimal (for example, 2% becomes 0.02) n = the number of time periods How to calculate compound interestTo calculate how much $2,000 will earn over two years at an interest rate of 5% per year, compounded monthly: 1. Divide the annual interest rate of 5% by 12 (as interest compounds monthly) = 0.0042 2. Calculate the number of time periods (n) in months you'll be earning interest for (2 years x 12 months per year) = 24 3. Use the compound interest formula A = $2,000 x (1+ 0.0042)24A = $2,000 x 1.106 A = $2,211.64
Lorenzo and Sophia compare the compounding effect
Lorenzo and Sophia both decide to invest $10,000 at a 5% interest rate for five years. Sophia earns interest monthly, and Lorenzo earns interest at the end of the five-year term. After five years:
Sophia and Lorenzo both started with the same amount. But Sophia gets $334 more interest than Lorenzo because of the compounding effect. Because Sophia is paid interest each month, the following month she earns interest on interest.
A. See compound interest to find out more. Q. Are the results of the compound interest calculator shown in today's dollars?A. The results of this calculator are shown in future dollars. No adjustment has been made for inflation. Q: Why have you changed the calculator?A: We upgrade our calculators regularly due to technological advances, regulatory changes and customer feedback. Once a calculator has been upgraded, the old version is no longer available. This compound interest calculator is a tool to help you estimate how much money you will earn on your deposit. In order to make smart financial decisions, you need to be able to foresee the final result. That's why it's worth knowing how to calculate compound interest. The most common real-life application of the compound interest formula is a regular savings calculation. Read on to find answers to the following questions:
You may also want to check our student loan calculator where you can make a projection on your expenses and study the effect of different student loan options on your budget.
In finance, interest rate is defined as the amount charged by a lender to a borrower for the use of an asset. So, for the borrower the interest rate is the cost of the debt, while for the lender it is the rate of return. Note that in the case where you make a deposit into a bank (e.g., put money in your savings account), you have, from a financial perspective, lent money to the bank. In such a case the interest rate reflects your profit. The interest rate is commonly expressed as a percentage of the principal amount (outstanding loan or value of deposit). Usually, it is presented on an annual basis, which is known as the annual percentage yield (APY) or effective annual rate (EAR).
Generally, compound interest is defined as interest that is earned not solely on the initial amount invested but also on any further interest. In other words, compound interest is the interest on both the initial principal and the interest which has been accumulated on this principle so far. Therefore, the fundamental characteristic of compound interest is that interest itself earns interest. This concept of adding a carrying charge makes a deposit or loan grow at a faster rate. You can use the compound interest equation to find the value of an investment after a specified period or estimate the rate you have earned when buying and selling some investments. It also allows you to answer some other questions, such as how long it will take to double your investment. We will answer these questions in the examples below.
You should know that simple interest is something different than the compound interest. It is calculated only on the initial sum of money. On the other hand, compound interest is the interest on the initial principal plus the interest which has been accumulated.
Most financial advisors will tell you that the compound frequency is the compounding periods in a year. But if you are not sure what compounding is, this definition will be meaningless to you… To understand this term you should know that compounding frequency is an answer to the question How often is the interest added to the principal each year? In other words, compounding frequency is the time period after which the interest will be calculated on top of the initial amount. For example:
Note that the greater the compounding frequency is, the greater the final balance. However, even when the frequency is unusually high, the final value can't rise above a particular limit. To understand the math behind this, check out our natural logarithm calculator. As the main focus of the calculator is the compounding mechanism, we designed a chart where you can follow the progress of the annual interest balances visually. If you choose a higher than yearly compounding frequency, the diagram will display the resulting extra or additional part of interest gained over yearly compounding by the higher frequency. Thus, in this way, you can easily observe the real power of compounding.
The compound interest formula is an equation that lets you estimate how much you will earn with your savings account. It's quite complex because it takes into consideration not only the annual interest rate and the number of years but also the number of times the interest is compounded per year. The formula for annual compound interest is as follows: FV = P (1+ r/m)^mt Where:
It is worth knowing that when the compounding period is one (m = 1) then the interest rate (r) is call the CAGR (compound annual growth rate).
Actually, you don't need to memorize the compound interest formula from the previous section to estimate the future value of your investment. In fact, you don't even need to know how to calculate compound interest! Thanks to our compound interest calculator you can do it in just a few seconds, whenever and wherever you want. (NB: Have you already tried the mobile version of our calculators?) With our smart calculator, all you need to calculate the future value of your investment is to fill the appropriate fields:
That's it! In a flash, our compound interest calculator makes all necessary computations for you and gives you the results. The two main results are:
In case you set the additional deposit field, we gave you the results for the compounded initial balance and compounded additional balance. Besides, we also show you their contribution to the total interest amount, namely, interest on the initial balance and interest on the additional deposit.
The following examples are there to try and help you answer these questions. We believe that after studying them, you won't have any trouble with the understanding and practical implementation of compound interest.
The first example is the simplest, in which we calculate the future value of an initial investment. Question You invest $10,000 for 10 years at the annual interest rate of 5%. The interest rate is compounded yearly. What will be the value of your investment after 10 years? Solution Firstly let’s determine what values are given, and what we need to find. We know that you are going to invest $10,000 - this is your initial balance P, and the number of years you are going to invest money is 10. Moreover, the interest rate r is equal to 5%, and the interest is compounded on a yearly basis, so the m in the compound interest formula is equal to 1. We want to calculate the amount of money you will receive from this investment, that is, we want to find the future value FV of your investment. To count it, we need to plug in the appropriate numbers into the compound interest formula: FV = 10,000 * (1 + 0.05/1) ^ (10*1) = 10,000 * 1.628895 = 16,288.95 Answer The value of your investment after 10 years will be $16,288.95. Your profit will be FV - P. It is $16,288.95 - $10,000.00 = $6,288.95. Note that when doing calculations you must be very careful with your rounding. You shouldn't do too much until the very end. Otherwise, your answer may be incorrect. The accuracy is dependent on the values you are computing. For standard calculations, six digits after the decimal point should be enough.
In the second example, we calculate the future value of an initial investment in which interest is compounded monthly. Question You invest $10,000 at the annual interest rate of 5%. The interest rate is compounded monthly. What will be the value of your investment after 10 years? Solution Like in the first example, we should determine the values first. The initial balance P is $10,000, the number of years you are going to invest money is 10, the interest rate r is equal to 5%, and the compounding frequency m is 12. We need to obtain the future value FV of the investment. Let's plug in the appropriate numbers in the compound interest formula: FV = 10,000 * (1 + 0.05/12) ^ (10*12) = 10,000 * 1.004167 ^ 120 = 10,000 * 1.647009 = 16,470.09 Answer The value of your investment after 10 years will be $16,470.09. Your profit will be FV - P. It is $16,470.09 - $10,000.00 = $6,470.09. Did you notice that this example is quite similar to the first one? Actually, the only difference is the compounding frequency. Note that, only thanks to more frequent compounding this time you will earn $181.14 more during the same period! ($6,470.09 - $6,288.95 = $181.14)
Now, let's try a different type of question that can be answered using the compound interest formula. This time, some basic algebra transformations will be required. In this example, we will consider a situation in which we know the initial balance, final balance, number of years and compounding frequency but we are asked to calculate the interest rate. This type of calculation may be applied in a situation where you want to determine the rate earned when buying and selling an asset (e.g., property) which you are using as an investment. Data and question Solution Let's try to plug this numbers in the basic compound interest formula: 3,000 = 2,000 * (1 + r/1) ^ (6*1) So: 3,000 = 2,000 * (1 + r) ^ (6) We can solve this equation using the following steps: 3,000 / 2,000= (1 + r) ^ (6) Raise both sides to the 1/6th power (3,000 / 2,000) ^ (1 / 6) = (1 + r) Subtract 1 from both sides (3,000 / 2,000) ^ (1 / 6) – 1 = r Finally solve for r r = 1.5 ^ 0.166667 – 1 = 1.069913 - 1 = 0.069913 = 6.9913% Answer In this example you earned $1,000 out of the initial investment of $2,000 within the six years, meaning that your annual rate was equal to 6.9913%. As you can see this time, the formula is not very simple and requires a lot of calculations. That's why it's worth testing our compound interest calculator, which solves the same equations in an instant, saving you time and effort.
Have you ever wondered how many years it will take for your investment to double its value? Besides its other capabilities, our calculator can help you to answer this question. To understand how it does it, let's take a look at the following example. Data and question You put $1,000 on your saving account. Assuming that the interest rate is equal to 4% and it is compounded yearly. Find the number of years after which the initial balance will double. Solution The given values are as follows: the initial balance P is $1,000 and final balance FV is 2 * $1,000 = $2,000, and the interest rate r is 4%. The frequency of the computing is 1. The time horizon of the investment t is unknown. Let's start with the basic compound interest equation: FV = P (1 + r/m)^mt Knowing that m = 1, r = 4%, and ‘FV = 2 * P we can write 2P = P (1 + 0.04) ^ t Which could be written as 2P = P (1.04) ^ t Divide both sides by P (P mustn't be 0!) 2 = 1.04 ^ t To solve for t, you need take the natural log (ln), of both sides: ln(2) = t * ln(1.04) So t = ln(2) / ln(1.04) = 0.693147 / 0.039221 = 17.67 Answer In our example it takes 18 years (18 is the nearest integer that is higher than 17.67) to double the initial investment. Have you noticed that in the above solution we didn't even need to know the initial and final balances of the investment? It is thanks to the simplification we made in the third step (Divide both sides by P). However, when using our compound interest rate calculator, you will need to provide this information in the appropriate fields. Don't worry if you just want to find the time in which the given interest rate would double your investment, just type in any numbers (for example 1 and 2). It is also worth knowing that exactly the same calculations may be used to compute when the investment would triple (or multiply by any number in fact). All you need to do is just use a different multiple of P in the second step of the above example. You can also do it with our calculator.
Compound interest tables were used everyday, before the era of calculators, personal computers, spreadsheets, and unbelievable solutions provided by Omni Calculator 😂. The tables were designed to make the financial calculations simpler and faster (yes, really…). They are included in many older financial textbooks as an appendix. Below, you can see what a compound interest table looks like. Using the data provided in the compound interest table you can calculate the final balance of your investment. All you need to know is that the column compound amount factor shows the value of the factor (1 + r)^t for the respective interest rate (first row) and t (first column). So to calculate the final balance of the investment you need to multiply the initial balance by the appropriate value from the table. Note that the values from the column Present worth factor are used to compute the present value of the investment when you know its future value. Obviously, this is only a basic example of a compound interest table. In fact, they are usually much, much larger, as they contain more periods t various interest rates r and different compounding frequencies m... You had to flip through dozens of pages to find the appropriate value of compound amount factor or present worth factor. With your new knowledge of how the world of financial calculations looked before Omni Calculator, do you enjoy our tool? Why not share it with your friends? Let them know about Omni! If you want to be financially smart, you can also try our other finance calculators.
Now that you know how to calculate compound interest, it's high time you found other applications to help you make the greatest profit from your investments: To compare bank offers which have different compounding periods, we need to calculate the Annual Percentage Yield, also called Effective Annual Rate (EAR). This value tells us how much profit we will earn within a year. The most comfortable way to figure it out is using the APY calculator, which estimates the EAR from the interest rate and compounding frequency. If you want to find out how long it would take for something to increase by n%, you can use our rule of 72 calculator. This tool enables you to check how much time you need to double your investment even quicker than the compound interest rate calculator. You may also be interested in the credit card payoff calculator, which allows you to estimate how long it will take until you are completely debt-free. Another interesting calculator is our cap rate calculator which determines the rate of return on your real estate property purchase. We also suggest you try the lease calculator which helps you determine the monthly and total payments for a lease. If you're looking to finance the purchase of a new recreational vehicle (RV), our RV loan calculator makes it simple to work out what the best deal will be for you. The depreciation calculator enables you to use three different methods to estimate how fast the value of your asset decreases over time. And finally, why not to try our dream come true calculator. |
What will be the compound interest earned on a sum of Rs 16000 for 2 years when interest rate is 15 Pa interest is being calculated every 8 months?
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