Compound Interest Calculator

Compound interest is the interest generated by reinvesting the principal amount and interest accumulated from previous periods. The core idea is that with compounding you earn interest on your interest. The math to calculate compound interest can be a bit complex. That’s where a compound interest calculator comes in handy.

This article introduces you to the Lemonn compound interest calculator. Designed to crunch those numbers in a few seconds, our calculator is sure to make your life a lot easier.

What is the compound interest calculator?

The compound interest calculator above is a tool to assess how your investment will grow with time. Simply key in the details that the calculator prompts you to enter, and it will do all the work for you. All you will need to use it is an internet connection.

How does the compound interest calculator work?

The Lemonn compound interest calculator will help you find the interest earned as well as the final amount you will receive—all in a few seconds. But first, you will need to feed in the following details:

• The compounding frequency: You will have to state how often you want the interest to be compounded. It could be on a yearly, semi-annual, quarterly, or monthly basis.  
• The principal amount: This is the sum that you wish to invest initially.
• The rate of interest: This refers to the rate mentioned in the scheme/investment plan or the prevalent interest rate in the economy.

If you enter these details correctly, you won’t have to wait much longer.

How can you calculate compound interest?

The easiest way to calculate compound interest is by using our calculator above. However, if you wish to understand the math that goes into it, use the formula below:

A=P(1+r/n)nt

Here:

A = Compound Interest

P = Principal Amount

r = Interest Rate

n = Compounding Frequency per year

t = Number of Investment Years

So if, for instance, you were to invest ₹1,00,000 for 5 years at an interest rate of 10%, the interest (compounded annually) in the first year would be calculated as follows:

A for year 1 = 1,00,000 * 10/100 = 10,000

In the second year, interest will accrue from the previous year’s interest, too. So the principal amount for the second year will be 1,00,000+10,000. That is ₹1,10,000.

Thus, A for year 2 = 1,10,000 * 10/100 = 11,000

For the third year, the interest amount will be calculated for the revised principal amount of ₹1,21,000. And so on. Thus, your money growth is accelerated with compound interest as opposed to simple interest.

Benefits of using the compound interest calculator

There are many benefits of using a compound interest calculator. Some of the main ones are discussed below.

• Accurate and reliable calculations

In money matters, accuracy is of utmost importance. And, as demonstrated above, calculating compound interest manually can be tedious. This is especially true when you wish to calculate compound interest for a large number of years, with multiple compoundings in a year.

When the process is so tedious and complex, the calculation tends to be more prone to human error. A compound interest calculator helps overcome this problem. It not only makes the math super easy, it consistently reduces the chances of errors. That makes it the more reliable option.

• Time saving

Manual calculations can be time-consuming. Using a compound interest calculator on the other hand is very effective in terms of time. Keying in the relevant information will take a fraction of the time that doing the calculations manually requires.

• Help with financial planning

The compound interest calculator can be a real boon in relation to financial planning. It helps calculate the total and yearly returns. And that’s a useful thing especially if you are considering disinvesting for some reason. So if you have a time-bound goal in mind—a Europe trip after 5 years, for instance—the calculator will help you figure out how much money you will have.

• Better investment decisions

A compound interest calculator like the one above also helps you understand investments better. That’s because it can quantify your investment products vis-à-vis your investment goals. In other words, it lets you toy around with the numbers until you come to the corpus amount you are looking for.

The calculator also quantifies returns on various investment instruments. So you can choose the option that works best for you.

Conclusion

Compound interest has the potential to make your money grow exponentially. And our calculator helps you realize the power of compounding. In addition to making things simpler, it is also the far more accurate and reliable way to do the math.