How to Calculate Compound Interest | Motilal Oswal

# Process of Calculating Compound Interest Compound interest is a powerful phenomenon that can significantly magnify the returns of your investment over the long term. One of the primary advantages of compound interest is that it requires absolutely no involvement or monitoring from the investor.

Also, calculating compound interest is very easy as well. There are several free compound interest calculators online that you can use to quickly determine just how much you’re likely to receive from your investment. Alternatively, you can also calculate it using a special formula.

In this article, we’re going to take a look at just that - how to calculate compound interest with an example. So, let’s begin.

## How to Calculate Compound Interest?

To calculate compound interest, all that you need to do is use a special formula. Here’s a quick look at what it is.

 Compound Interest = {Principal Amount [1 + (r ÷ n)]n*t } - Principal Amount

Here, the principal amount is the initial amount of investment, r represents the rate of interest, n represents the frequency of compounding, and t represents the tenure of the investment.

By simply employing this formula, you can quickly calculate the compound interest for any given investment. To prove this, let’s take up a quick example.

Let’s say that you invest ₹5 Lakhs for 10 years. The rate of interest is 9% per annum and the frequency of compounding is annual, i.e., once per year. Substituting these values in the above-mentioned formula should give you the compound interest that you would earn on your investment at the end of the 10 years. Let’s check it out.

Compound Interest = {₹5 Lakhs [1 + (0.09 ÷ 1)]1*10 } - ₹5 Lakhs

 Compound Interest = ₹6,83,500

By substituting the figures in the formula mentioned above, you get the compound interest of ₹6,83,500 if you invest ₹5 Lakhs at 9% per annum interest for 10 years.

As you can see, thanks to the power of compounding, you were able to double your investment amount within just 10 years without any intervention from your end at all. Grow your investments, one-step at a time with RD Calculator

## How To Use A Compound Interest Calculator?

Now, although you can calculate compound interest using the above formula, it is advisable to use a dedicated tool. This will ensure that the results are accurate and free from calculation errors that might unwittingly creep in when calculating manually. Also, when you use a compound interest calculator, you get to save time and effort since the results will be displayed instantaneously.

To use a compound interest financial calculator, all that you need to do is search for a tool online. Then, enter the following values in their respective fields - the principal amount of investment, the rate of interest, the compounding frequency, and the tenure. Once you’ve entered all these values, click on submit or calculate. The tool should instantly display the amount of compound interest you’re likely to get from your investment along with the maturity amount.

### Conclusion

It is crucial to calculate the compound interest on an investment beforehand. This process can be simplified by using a compound interest calculator. It will not only give you an idea of the returns but also ensure that you take an informed investment decision. On the other hand, if you’re looking for high-return investments and don’t mind taking on a little risk, investing in the stock market is a great way to achieve your goals. To invest in a stock market or upcoming IPOs of companies, you would need to have a demat account. If you don’t have one, you can simply open a demat account through a paperless process by visiting the website of Motilal Oswal.

• Open your FREE Demat Account in 5 Minutes
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