Compounding is when you earn interest on your investment over a period of time, due to which you witness growth in your earnings. The power of compounding enables your earnings to grow as your investments grow. Here's how you can understand this better. Interest is added on the initial investment (principal amount), this interest is the compound interest. Since the amount would be added to the initial investment and the new interest is calculated on this amount, the investment will continue to grow as this process would be consistent throughout the investment period.

Compound Interest Calculator

Existing Corpus Amount (A)*: Principal Amount (P)*: Interest Rate (%) (r)*: Time Period (years) (n)*: Compounding Percentage (%) (Optional):

Interest Amount:

Total Returns:

Compound interest is calculated based on the initial principal amount, the interest rate, and the compounding frequency. The formula for compound interest is:

A = P * (1 + r/n)^(nt)

Where:
A = the final amount (including interest)
P = the principal amount (initial amount)
r = annual interest rate (expressed as a decimal)
n = number of times interest is compounded per year
t = time period for which interest is calculated (in years)

To calculate compound interest, follow these steps:

1.Identify the values for P, r, n, and t.
2. Divide the annual interest rate (r) by the number of times interest is compounded per year (n) to get the periodic interest rate (r/n).
3. Multiply the number of times interest is compounded per year (n) by the time period (t) to get the total number of compounding periods (nt).
4. Raise (1 + r/n) to the power of the total number of compounding periods (nt).
5. Multiply the principal amount (P) by the result from step 4 to get the final amount (A).

Let's use an example with Indian Rupees (INR).

Let's say you have an initial principal amount (P) of INR 50,000, an annual interest rate (r) of 8%, compounded semi-annually (n=2), and a time period (t) of 2.5 years.
P = INR 50,000
r = 0.08
n = 2
t = 2.5

Plugging these values into the compound interest formula:

A = INR 50,000 * (1 + 0.08/2)^(2*2.5)

A = INR 50,000 * (1.04)^5

A = INR 50,000 * 1.2167

A = INR 60,834 (rounded to the nearest rupee)

So, the final amount after 2.5 years with semi-annual compounding at an annual interest rate of 8% would be approximately INR 60,834