Question

If the individual interest available for three years at 30% interest per annum is ₹ 300, see the compound interest available thereon​

Answer 1

What is the calculator about?

The fixed deposit (FD) calculator will help you calculate the maturity value of the investment if it grows at a certain interest rate.

How to use it

The maturity value of the deposit will depend on the amount of investment, duration of the deposit, interest rate, and on the frequency of interest pay-out which can be monthly or quarterly, or a cumulative deposit.

Answer 2

Explanation:

Compound interest, also known as compounding interest, is accumulated interest that is added to the principal amount invested to calculate the interest on a deposit. In simple words, compound interest is the ‘interest earned on interest’. This simply means that compound interest is earned on the principal plus the interest earned. The principal basically increases every year or depending on how frequently compound interest is calculated .

Suppose you make an investment of Rs.50,000 in a fixed deposit for 5 years at 10%, the interest earned for the first year will be Rs.5000.

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However, for the second year, the principal will not be Rs.50,000, but the accumulated interest amount, plus the principal. This means that the principal will be Rs.50,000 + Rs.5000 = 55,000.

Second year principal = Previous year’s principal + Interest earned, which is Rs.50,000 + Rs.5,000 = Rs.55,000. It is clearly seen here that the interest is added back to the principal amount to calculate interest for the following years. This is nothing but compounding.

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