Compound Interest Formula

Compound interest is the most used chapter in mathematics. The formula is taught from class 5th students to students preparing for competitive exams because its preparation proves to be effective in both personal life and in exam. It is one of the important topics for SSC, Bank, Railway, etc. examinations.

In a bid to learn the use of simple interest and compound interest easily, it is very important to study its formula because the formula itself defines different parts of time. Formula, tricks with examples have been provided here.

What is compound interest?

When interest on the amount is calculated at any point of time by adding the accumulated interest to the principal, then it is compound interest. In other words, when the interest of the amount taken from a person or bank and is not given on time, it is added to the principal amount and then interest is charged on that amount, it is called compound interest.

Compound Interest formula

A = P (1 + r/n) (nt)

Where:-

P = Principal

r = Annual Rate of Interest

n = total number of interest cycles in a year

t = total time

A = Amount after t time

CI = Compound Interest

Compounded interest only (without principal):

P (1 + r/n) (nt) – P

Following are the terms of Compound Interest: annual, half yearly and quarter.

Annual: Interest is compounded annually and added to the principal.

Half yearly: Interest is compounded half yearly and added to the principal.

Quarter: Interest is compounded quarterly and added to the principal.

Keep in mind

When interest is compounded half yearly, r = R / 2 , n = 2T

And when interest is compounded quarterly, r = R / 4 , n = 4T

Though, we all learn the compound interest in school in childhood. But, in reality, its power is understood only by an investor. If you understand in a simple way, the interest you are getting on investing, the interest you will get on it is called compounding. Along with the principal, interest is also earned on its interest. Compounding is the best way to double or triple your investment.

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