# Compound Interest Calculator

What is a compound interest?

The compound interest is an interest calculated on the principal and the interest rate of previous times of the loan. In compound interest, the rate of interest grows at the faster rate than in simple interest. The compounding rate depends on the frequency of compounding. The number of compounding periods is more than the compounding interest earned is higher. It is a boon for the customer who wants to invest because they get higher interest. It is worst enemy for the customer who took the loan because the interest rate will be higher.

Benefits of compound interest:

#### The compound interest is the best option when it comes to deposits and investments. When it comes to investments the customer gains much more from the interest payable. But when it comes to loans the compound interest is the worst enemy. The customer ends up paying off significantly more interest on the loans. The benefits of compound interest are:

• Reinvestment: The interest gained on the deposit can be reinvested into the same deposit. So that the deposit increases and the customer gains more interest.
• Higher value of the deposit: The interest leads to higher value of the deposit after maturity. The deposit with compound interest will be increased than the deposit with simple interest.
• Long-term savings: The compound interest deposits encourage long-term savings because the return on the investment is higher after 10 years or more.
• Increased earning: The compounding period increases the interest earned.

Compound interest formulas:

The compound interest can be calculated using two different formulas. They are basic compound interest and the continuous compound interest.

Basic compound interest:

In basic compounding, the rate of interest is applied at periodic intervals and generated interest is added to the principal. The basic formula for calculating compounding interest is:

At = A0 (1+r) n

A: The initial invested amount.

At : The amount after time T.

R: The Interest rate.

N: The number of compounding period.

If the compounding period is monthly, weekly, or daily then the formula used is

At = A0 (1+r/n) nt

T: Number of years.

Continuous compound interest:

In continuous compound interest, the interest is calculated in the smaller possible intervals. The earned interest is added back to the principal. The formula used is Eulerâ€™s constant. It generates the higher rate of returns. The continuous compound interest is calculated using the following equation:

At = A0ert

A: The initial invested amount.

At : The amount after time T.

R: The Interest rate.

T: Number of years.

E: Mathematical constant e, approximately 2.718.

This compound interest calculator helps to compare or convert the rate of interest that is compounded at different periods.