Forex Trading

What is Monthly Compound Interest Formula? Examples

Math will no longer be a tough subject, especially when you understand the concepts through visualizations. The greater the interest rate, the more money you will gain or owe. Thus, at the end of the second year, the total amount to be paid is Rs 1210 for borrowing Rs 1000.

What is 12% compounded monthly?

‘12% interest’ means that the interest rate is 12% per year, compounded annually. ‘12% interest compounded monthly’ means that the interest rate is 12% per year (not 12% per month), compounded monthly. Thus, the interest rate is 1% (12% / 12) per month.

Suppose you borrow ₹5000 from a moneylender on a 10% per annum interest rate. P is principal, I is the interest rate, n is the number of compounding periods. As the size of the investment continues to grow, it will earn interest to the total investment amount. This loop will continue allowing the investment to grow substantially without any additional investment capital. With time, this cycle has potential for a substantial growth of the original investment.

Let’s identify the values of the variables we need and then plug those values into the compound interest formula. Please note that by submitting the above mentioned details, you are authorizing us to Call/SMS you even though you may be registered under DND. We do not sell or rent your contact information to third parties. Please note that by submitting the above-mentioned details, you are authorizing us to Call/SMS you even though you may be registered under DND. To calculate it online, you simply have to use a free online calculator. These provisions are available easily with a quick search and all you need to do is input the values of the variables.

How To Calculate Compound Interest By Using The Vakilsearch Interest Calculator

Also, to take advantage of compounding, one has to increase the frequency of loan payments. This way, they can pay lesser interest than what they are liable to pay. Mutual funds andUnit-Linked Insurance Plans are two of the most common investments that utilise compound interest formulae to grow your money. Both investment avenues work in a similar fashion, with the main difference being that ULIPs offer the additional benefit of life cover.

  • Will you be making the regular payments for 5 years, 10 years or 25 years?
  • The rate at which compound interest accumulates interest depends on the frequency – higher the number of compounding periods, higher will be the compound interest.
  • Here, N represents the total number of times that compounding occurs over a given time period.
  • Once you’ve entered all three variables in the calculator, it will automatically calculate the total gains and total corpus that you’ll accumulate by the end of the tenure.

While compounding increases over time, it is entirely predicated on the initial deposit or loan amount. What amount is to be repaid on a loan of Rs 20,000 for 1 and a half years at 10% per annum compounded half-yearly. It is the sum of the original principal and the total compound interest earned. The amount at the end of the first year will be carried forward to the next year as principal for the second year. So, the interest in the second year will be calculated on the new principal which is the sum of the previous year’s principal and earned interest.

Monthly Compound Interest Formula

If we miss a payment by a day also, towards the end of tenure it may incur a huge loss. The interest calculation is for the next cycle and for a higher value. Compound interest is actually designed to help the lenders but not the borrowers. Simple interest is the interest paid only on the principal, whereas, compound interest is the interest paid on both principal and interest compounded at regular intervals. The time duration over which an interest rate is applicable is referred to in many different terms. Compound interest depends on the amount accumulated at the end of the previous tenure but not on the original principal.

By the end of the second year, you will earn interest on the Original Principal + Interest Earned in the First Year, or on Rs 11,000. Your interest compound interest formula example india would be 10 per cent of this amount, or Rs 1,100. This amount will be added in the third year to the Principal and become Rs 12,100.

Calculations for Each Year:

Next, if you’d like to add more money to your investment at regular intervals, you can choose to do so. Type in the amount you’d like to add and choose whether they will be monthly or annual payments. Will you be making the regular payments for 5 years, 10 years or 25 years? You can either move the slider or simply input the number of years in the provided box. In Compound interest class 8, the calculation of compound interest is the same as simple interest every year with the principal renewed each time. If you keep a fixed amount in a bank, then every year some interest gets added to it.

ET Money’s compound interest calculator is fairly easy to use. You need to enter three inputs to get your total interest amount — the principal invested, the rate of interest earned, and the holding period of the investment. Here, N represents the total number of times that compounding occurs over a given time period. For instance, if you’ve made an investment for 10 years and the compounding frequency is half-yearly, N will be 20 (i.e., 10 years x 2 times/year). The ClearTax Compound Interest Calculator asks you to fill the compounding frequency from the daily, weekly, monthly, quarterly and other options. Quarterly compounding means interest is calculated and paid every three months.

compound interest formula example india

You can choose plans where the interest is accrued daily, monthly, six-monthly or annually. Compounding will always work best when the interval of compounding is short. Banks or any financial organization calculate the amount based on compound interest only. One of the most important and well accepted measures in the world of finance is compound interest. It is very useful for long term wealth creation since it assumes that the intermittent cash flows are reinvested in the investment. Normally, compounding has a huge impact on the eventual wealth and that can be simulated quite effectively using the compound interest calculator.


As more the number of times interest is compounded, the more return on your investment. Under daily compounding, interest is calculated daily on the principal and accumulated interest. Monthly compounding calculates interest on a monthly basis on the principal and accumulated interest; however, in the case of yearly compounding, it is done annually. Now that you know the compound interest formula let’s use it to calculate compound interest.

What Is the Monthly Compound Interest Formula?

The monthly compound interest formula is given as 

CI = P(1 + (r/12) )12t – P. Where, P is the principal amount, r is the interest rate in decimal form, n = 12 (it means that the amount compounded 12 times in a year), and t is the time.

While calculating the compound interest, the rate of interest, and each time period must be of the same duration. Compound interest is an interest accumulated on the principal and interest together over a given time period. In case of interest compounded half-yearly, we consider a new principal at the end of every six months and calculate interest every six months. In Maths, Compound interest can be calculated in different ways for different situations. We can use the interest formula of compound interest to ease the calculations.

Investing in mutual funds is one of the easiest way of reaping the benefits of compounding. Opting to reinvest dividends or choosing a growth plan results in purchasing more shares of the fund. More interest accumulates over time through continuous purchasing, and also the investment will grow in value. If you’re wondering what kind of interest rate you need, you can check out ourcompound interest calculator. To start, you need to know how much money you have to invest upfront.

What is the difference between simple interest and compound interest?

The calculator will show you the future value of your investments. The power of compounding comes from the fact that the investor’s mutual fund returns in each period are automatically added to the principal. The returns for the next period are earned on the principal plus the mutual fund returns earned during the previous period. What’s more, the investment may also offer a higher compounding frequency. For instance, an investment that offers daily compounding interest earns more than an investment that offers quarterly compounding interest. It is often said that compound interest is the eighth wonder of finance.

compound interest formula example india

This means that as time goes on, your interest will continue to grow. Make sure to set the investment’s entire tenure a little bit higher than the whole number of actual years you are prepared to put money into. The possibilities of compound interest are virtually limitless in mathematics. Using the CI calculator provided by Vakilsearch, compound interest can be calculated with ease. As time passes, the effects of compounding start to become more pronounced.

What is the compound interest on Rupees 1000 at 10% for 2 years?

Detailed Solution

∴ The Interest Amount will be Rs. 210.

Compound interest investment plans are especially useful in planning your finances for your retirement. Compounding is when you earn interest on your investment over a period of time, due to which you witness a growth on your earnings. Power of compounding enables your earnings to grow as your investments grow. An interest is added on the initial investment , this interest is the compound interest.

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