Interest Calculator
Calculate simple and compound interest
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About Interest Calculator
Interest is the cost of borrowing money or the return on lending/investing money. Simple interest is calculated only on principal amount. Compound interest is calculated on principal plus accumulated interest, making it grow faster over time.
How is Interest Calculated?
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Simple Interest: SI = (P × R × T) / 100, where P=Principal, R=Rate, T=Time
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Compound Interest: A = P(1 + R/n)^(nT), where n=compounding frequency per year
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Monthly compounding gives highest returns, followed by quarterly, half-yearly, and yearly
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Compound interest benefits long-term investments significantly
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Most banks use compound interest for deposits and loans
Example:
₹10,000 at 10% for 5 years: Simple Interest = ₹5,000, Total = ₹15,000. Compound Interest (yearly) = ₹6,105, Total = ₹16,105. Difference of ₹1,105!
Key Benefits
Loan Planning: Understand total interest on loans before borrowing
Investment Comparison: Compare simple vs compound interest returns
Education: Learn power of compounding for wealth creation
EMI Understanding: Know how interest affects loan repayment
Deposit Planning: Calculate returns on FD, RD with different compounding
Financial Literacy: Understand how banks calculate interest
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount throughout the period. Compound interest is calculated on principal plus accumulated interest, so interest earns interest. Compound interest always gives higher returns for same rate and tenure.
Which compounding frequency is best?
More frequent compounding gives higher returns. Monthly compounding is best, followed by quarterly, half-yearly, and yearly. However, the difference is not huge - for ₹1L at 10% for 5 years: Monthly = ₹1,64,700, Yearly = ₹1,61,051 (difference ₹3,649).
Do banks use simple or compound interest?
Banks use compound interest for most products - savings accounts, FDs, RDs, loans. Interest is typically compounded quarterly for deposits and monthly for loans. Credit cards use daily compounding, making them very expensive if you don't pay on time.
How does compounding help in wealth creation?
Compounding multiplies wealth over time. The longer you stay invested, more powerful it becomes. This is why starting early is crucial - someone investing from age 25 to 60 (35 years) will have much more than someone investing from 40 to 60 (20 years), even with same monthly amount.