Understanding compound interest can be a little complex for many, but once you understand the basics, it is as easy as a walk in the park. The interest you earn with the total balance in your investment is reinvested, which in turn helps you earn more money. You can use a compound interest calculator to calculate how much your investments can grow because of compound interest.
Read on to know more about compound interest calculator.
In simpler words, compound interest is the earned interest that gets added to the principal balance, which in turn earns you more interest. It is called compounding your returns. Here’s an example of how compound interest works:
- You decided to invest 1000 rupees, and the annual interest is 5%.
- Now in one year, you will be earning 50 rupees, which makes your new balance 1050 rupees.
- In the second year, you will again be earning 5% annual interest, which is now 52.50 rupees.
- Now your new balance is 1102.50 rupees.
- If you kept the same invested amount of 1000 rupees in your profile for 30 years without withdrawing any money from the account, then you would still end up with 4321.94 rupees in your account.
Because of compound interest, you will be able to earn interest on the interest added to your account. The higher your amount, the more you will be receiving as interest.
This adds a positive touch to the quote, “The rich become richer.” If you are having a tough time calculating compound interest, then you can take the help of the compound interest calculator available online.
How does a compound interest calculator work?
There are several compound interest calculators available online that you can choose from. Once you choose one, you will be asked a few questions about your investment.
You will be required to add your principal amount (the amount that you will be investing initially), the rate of interest, and, lastly, the time period (tenure). After you have successfully added all the information correctly, the results will be out. The calculation will be done based on that, and you will find out what to expect by the end of your tenure
How can a compound interest calculator help you?
- Compound interest makes it very profitable for businesses. A compound interest calculator helps you determine the percentage of interest and accurate figures that you will earn by the end of your tenure.
- It will help you secure a financially independent future for you and your family when you find out what to expect by the end of your tenure.
- It will make you understand how much you need to invest over time to build a corpus for your future.
- Once you have established the amount required for you to live a financially secure life, you can start adding and investing that much money.
These are some of the things you need to know about compound interest. Getting in touch with an expert in the field is always recommended for better decision-making from your end.