Role Of Compound Interest In Your Investment

2 minutes, 21 seconds Read

Compound interest is an essential concept in finance and economics. It might have been a tricky concept in school, but it is much more beneficial when you start investing. It can be thought of as the process of earning interests on both principal and accumulated interest. Compound interest can be calculated using different methods, including daily, monthly, yearly, or continuously. Compound interest is interest that is earned not only on the principal but also on the accumulated interest of previous years. It accrues on both the principal and the interest of security. The formula for compound interest is:

A = P(1 + r)nt

Where A=the amount of money after n years, P=the original sum invested, r=the rate of return per year, and t=time in years.

The formula can be rearranged to find the time required to reach a certain value:

t = ln(A/P)/r

Compound interest plays a crucial role in investment, and that is the primary reason why there is so many compound interest calculator online. The compound interest calculator is one of the essential tools for any investor. It is used to calculate the amount of money that will accumulate in an investment over a given period. The formula of the continuous compound interest calculator is quite simple:

P = P (1+r/n)^n

Where P = Principal amount, r = Compound interest rate, and n = number of compounding periods per year.

With the help of this formula, you can redeem the benefits that come with the power of a compounding calculator. Now, let’s talk more about the role of compound interest in your investments.

Some people often think that simple interest is better than compound interest, but the fact remains that compound interest can earn you more as compared to simple interest. If you are younger, then compound interest can earn you a good amount of money. The interest grows when it is paid through compound interest instead of simple interest. For example, if you have a 100,000 rupees deposit that receives 5 percent simple interest every year, then you would be able to earn around 50,000 rupees on your deposit. However, if you are receiving 5 percent compound interest every year, then you would be earning around 62,890 rupees, which is significantly more than what you’d have earned through simple interest. So, it is evident that compound interest plays a huge role in your investment as compared to other types of investments, and it is necessary to understand the applications of compound interest.


So, that was our detailed description of the role of compound interest in investments, and we hope that now you understand the power of compound interest. Now that you know what compound interest can do and how you can easily make sure that you earn more money through your investments with the help of compound interest.


David Cohen

Rachel Cohen: Rachel is a sustainability consultant who blogs about corporate social responsibility and sustainable business practices.

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