What is Interest?
Interest is the cost of borrowing money or the return earned on an investment. When you take out a loan, you pay interest. When you deposit money in a savings account, you earn interest. It's typically expressed as an annual percentage rate (APR). This online interest calculator helps you compute it effortlessly.
Difference Between Simple and Compound Interest
Simple Interest is calculated only on the initial principal amount. It remains constant over the entire period. Compound Interest is calculated on the principal amount plus the accumulated interest from previous periods. This "interest on interest" effect can lead to significantly higher growth over time, making it a powerful tool for investments.
How to Use This Interest Calculator
- Principal & Rate: Enter your initial amount and the annual interest rate.
- Time: Specify the duration in years.
- Interest Type: Choose 'Simple' or 'Compound'. If you select 'Compound', an option to choose the compounding frequency (e.g., monthly, quarterly) will appear.
- Calculate: Click the button to see the total interest and the final amount.
Frequently Asked Questions (FAQs)
Which type of interest is better for investments?
Compound interest is significantly better for investments. Because you earn interest on your previously earned interest, your investment grows at an accelerating rate. This is often referred to as the "magic of compounding."
Is this a simple interest and compound interest calculator for India?
Yes. By selecting 'Indian Rupee (₹)' from the currency dropdown, this tool functions as an accurate interest calculator for India, formatting all results in the local currency. You can also use it for other major currencies.
How does compounding frequency affect my returns?
The more frequently interest is compounded, the faster your money grows. For example, monthly compounding will yield a slightly higher return than annual compounding at the same interest rate because the interest starts earning its own interest sooner and more often.