1. What Is Daily, Monthly & Yearly Compounding?

Daily compounding is when the interest is calculated daily and added to the invested amount. The frequency ‘N’ in the calculation is 365. Monthly compounding is when the interest is calculated monthly and added to the invested amount. The frequency ‘N’ in the calculation is 12. Yearly compounding is when the interest is calculated every year and added to the invested amount. The frequency ‘N’ in the calculation is 1.

2. What Are Compound Interest Investments?

Investments that offer returns on a compound interest basis are called compound interest investments.

3. What is the difference between simple interest and compound interest?

Under simple interest, the invested amount on which the interest is calculated remains the same. Under compound interest, the amount increases after each calculation. Interest earned under the simple interest method is usually lower compared to the compound interest method.

4. What are the advantages of compound interest?

The advantages of compound interest are as follows – The interest earned is higher With time, your corpus can grow substantially.

5. What is the magic of compounding?

The magic of compounding can be traced back to the power of compounding. It is essentially a strategy where your money makes more money because it is reinvested into the compound interest scheme. In other words, you earn interest on your interest, thus making your money grow faster. You can use a compound Interest calculator to understand the magic of compounding better.

6. What does compounding interest mean?

Understanding the power of compounding meaning is the first step to getting this concept to work for you. Compounding interest is interest that is calculated on the principal component as well as the interest component. For example, say you have invested Rs. 10,000 in a compound interest scheme at 10% interest. In the first year, you earn Rs. 1,000 on the principal amount of Rs. 10,000. In the second year, however, you earn Rs. 1,100 on the principal amount of Rs. 10,000 as well as the first-year interest of Rs. 1,000.

7. What is the formula for calculating compound interest?

The formula for calculating compound interest goes like this. P (1 + r/n) nt Here, P is the principal, r is the annual interest, and n is the frequency of compounding and t is the tenure.

8. How to use the compound Interest calculator by Bajaj Life Insurance?

Using the compound Interest calculator from Bajaj Life Insurance is extremely easy. You first need to visit the relevant web page and click the ‘start now’ button. Then, you need to first enter the amount that you wish to invest. You can use the slider to feed in this amount, or you can type it out in the box given. Next, you need to select the tenure of investment. Lastly, you need to pick the expected annual rate of return. The compound Interest calculator then shows you the wealth you create in contrast with the wealth Raj, who invests for 2 additional years, creates.

9. How often is interest compounded?

To get a better idea of the power of compounding meaning, it is important to also know the frequencies at which the interest is compounded. Depending on the investment or the scheme, compound interest may be calculated daily (365 times each year), monthly (12 times a year), quarterly (4 times a year), semi-annually (2 times per year) or annually (once a year).

10. Is it better to compound daily or monthly?

As we saw in the above answer, daily compounding occurs on a daily basis, meaning that you earn interest on interest every single day. This kind of compounding makes the most of the power of compound interest, because it makes your money grow each day. The shorter the compounding interval, the higher the compound interest is. That said the difference between monthly compounding and daily compounding is not major.

11. What investments offer power of compounding benefits?

There are many investments in India that offer the power of compound interest. With many of these investments, you can truly reap the benefits by remaining invested for the long term. Some examples include ULIP plans , Public Provident Fund (PPF), mutual funds, fixed deposits with reinvestment, and National Pension System (NPS), among others.

12. Can the power of compounding make you rich?

The power of compounding has the potential to generate wealth over the long term. This is primarily because compounding works on the principle of making your money make money, since your interest also earns interest. That said, the returns generated from compounding depend on the rate of compounding, the principal invested, and the tenure of investment. You can use a compound Interest calculator to better understand how your money grows with the power of compound interest.

13. What Is Daily, Monthly & Yearly Compounding?

Daily compounding calculates interest every day, adding it to the principal, which allows your money to grow faster. Monthly compounding adds interest once a month, while yearly compounding adds it only once per year. The more frequently interest is compounded, the higher the returns, as each new interest calculation includes previously earned interest. Using a compound interest calculator can help see the difference between daily, monthly, and yearly compounding.

Compound Interest Calculator - Check Power of Compounding

Calling From	Phone Number
Calling us from INDIA	+91 20 6712 1212
Rest of the World	+91 20 6787 1700

Overview

If you would like to understand your investment corpus over a specific period of time at a defined rate of interest, you can use this tool called the “Power of Compounding calculator”. In this calculator, you need to enter the total amount of money you wish to invest, the entire tenure or duration of your investment and your expected rate of return, and you will be able to get the estimated total corpus amount.

What is Compound Interest?

Compound interest is the method of calculating interest where the returns you earn are added back to the principal amount. Future interest is calculated on this new total. Each period, your investment does not just generate interest on the original amount but also on the interest accumulated from earlier periods.

In contrast to simple interest, which remains fixed as it is based only on the principal, compound interest grows progressively because the base value keeps increasing with each addition of interest. The frequency of compounding, which can be yearly, half-yearly, quarterly, monthly, or daily, also influences the final amount. The more frequently interest is compounded, the larger the growth.

Compound interest allows your money to build on itself and creates a steadily growing balance. It thus lays the foundation for its use in many financial products like savings and investments.

What Is The Power Of Compounding?

The power of compounding is the process of earning returns not only on your investment option but also on the returns previously generated and reinvested. In simple terms, it lets your money grow faster over time because you generate ‘interest on interest’.

The power of compounding is that it can let you multiply your return on investments. You just need to invest regularly over the long term. The fact that this process requires no intervention at all is one of its best features. Once you invest, it works automatically in the background.

You can reach your financial objectives considerably more quickly with compounding. All you have to do is wait. If you're not accustomed to performing complex calculations, comprehending the math behind the power of compounding may appear somewhat challenging. Fortunately, numerous online compounding calculators can help you quickly estimate the amount of returns that you are likely to earn. Compound interest calculators can help you visualize the growth of your investments. By entering your investment amount, expected rate of return, and tenure, you can see exactly how much your savings could grow over time.

If you want to learn more about how compounding works, head to the next segment to understand the workings of this concept with the help of a couple of examples.

How Does The Power Of Compounding Work?

Now that you are aware of what the power of compounding is, let us learn how it actually works. The power of compounding can let you see how small investments grow into a much larger corpus when given enough time.

But it wouldn’t hurt to understand the mathematics behind the power of compounding. Let's look at a few examples for the same.

Let's study the case of Anuj and Bhargav. They both agree to invest the same amount of ₹ 1,00,000 at the rate of 10% annually for the duration of 20 years. Anuj invests in a scheme with simple interest, and Bhargav picks a scheme that uses the power of compounding. After maturity, their investment corpus will look like:

Particulars	Anuj (simple interest)	Bhargav (compound interest)
Investment amount	₹ 1,00,000	₹ 1,00,000
Rate of return on the investment	10% per annum	10% per annum
Investment tenure	20 years	20 years
Frequency of compounding	NA	Yearly
Corpus at the end of the tenure	₹ 3,00,000	₹ 6,72,750

This example of the power of compounding demonstrates that a scheme that leverages compounding can generate exponentially better returns compared to one that relies on basic interest.

Additionally, you can maximize the benefits of compounding by starting to invest early. This is because the power of compounding increases with a longer tenure. A compound interest calculator online can let you simulate this growth over various time periods and with different initial investments.

Let's now look at another example that shows why it's important to start investing early. Deepa and Ekta invested in a plan with yearly compounding. Deepa began investing ₹ 1,00,000 early, leading to a 20-year investment period. Ekta, on the other hand, started late, limiting her entire investing time to only 15 years. To compensate, she invested ₹1,50,000.

Here's what their investment portfolios look like at the end of their respective terms.

Particulars	Deepa	Ekta
Investment amount	₹ 1,00,000	₹ 1,50,000
Rate of return on the investment	10% per annum	10% per annum
Investment tenure	20 years	15 years
Frequency of compounding	Yearly	Yearly
Corpus at the end of the tenure	₹ 6,72,750	₹ 6,26,587

You can also enter these details in a compound interest calculator and observe how the returns on investment vary. Ekta invested ₹ 50,000 more than Deepa to compensate for her late start but still fell short by a few thousand. This demonstrates how important it is to begin investing early.

Note that these examples are for illustrative purposes only, and the actual value may differ based on the decisions made by you at the time of investing.

How To Use Bajaj Life Insurance Power Of Compounding Calculator?

Understanding the compound Interest calculator math can be tough. It is one thing to make a single calculation based on the parameters given, and it is quite a different story to compute the interest you will earn in multiple scenarios and see how they compare with one another. Here is where a compound Interest calculator can prove to be very useful.

The compound Interest calculator from Bajaj Life Insurance can help you understand an estimate of how much you stand to earn if you invest a fixed amount of money and let it undergo the power of compounding for a fixed period of time, at a specific annual rate of return. Here is a step-by-step guide to help you use the compound Interest calculator from Bajaj Life Insurance to find out how much your savings will grow with the power of compounding.

Step	Description
Step 1: Enter the amount you wish to invest	The first step to get the compound Interest calculator math rolling is to fill in the amount you wish to invest. A separate section in the calculator mentions that Raj, a fictional investor, also invests the same amount as you.
Step 2: Enter the investment period	The next step is to enter the period for which you plan to invest that amount. The compound Interest calculator assumes that Raj, the hypothetical investor, invests for a period that is 2 years longer than the tenure you chose. This helps you understand the contrast better.
Step 3: Enter the expected annual rate of return	Lastly, you need to fill in the annual rate of return that you expect your investment plan to earn. To level the playing field, it is assumed that Raj, too, earns compound interest at the same rate. Once you’ve filled in all these details, the compound Interest calculator from Bajaj Life Insurance shows you the estimated gain is, and what Raj’s estimated gain is. You can compare the two metrics to see how the tenure of investment has a direct impact on the wealth created.

Compound Interest Example

A compound interest lets your investment grow not just on the principal but also on the reinvested interest over time. Let’s take an example. You invest ₹50,000 at an annual interest rate of 10%, compounded annually, for four years.

The formula for compound interest is P × [(1 + i)ⁿ – 1]

Where,

P = Principal

i = Annual interest rate (in decimals)

n = Number of compounding periods

Here, to calculate compound interest:

Add 1 to the interest rate = 1 + i = 1 + 0.10 = 1.10
Raise to the power of the number of years (n = 4) = (1.10)^4 = 1.10 × 1.10 × 1.10 × 1.10 = 1.4641
Subtract 1 = 1.4641 − 1 = 0.4641
Multiply by the principal = 50,000 × 0.4641 = 23,205
Compute the total amount (principal + interest) = 50,000 + 23,205 = 73,205

How can a Compound Interest Calculator Help You?

Using a compound interest calculator allows you to get an estimate of how your investments can grow over time, helping you make smarter financial choices effortlessly.

Precise Outcomes

A compound interest calculator estimates the total returns on your investments, taking into account the principal, rate of interest, and period. It shows exactly how much interest you can earn over time. It enables you to visualize growth and compare multiple scenarios without manual calculations, saving time while improving accuracy.

Fast & Simple

Using a compounding calculator is effortless. Enter the investment amount, projected rate of return, and term. The tool quickly estimates your future corpus and demonstrates how compounding works in action. Even beginners can comprehend and plan successfully, making it a viable option for a wide range of investors.

Diverse Investment Options

You can compare different savings avenues, like fixed deposits, mutual funds, and retirement accounts. Adjusting the investment amount, duration, or compounding frequency reveals how various choices impact wealth building, allowing you to determine the optimal plan for your objectives.

Helps in Financial Planning

By providing a clear picture of your wealth growth over time, a compound interest calculator supports long-term planning. You can determine how much to invest regularly, identify gaps in your current strategy, and plan systematically to achieve retirement, education, or other financial objectives efficiently.

Informed Decisions

A compounding calculator lets you make choices based on facts instead of guesses. You may change your investing methods, manage your risks, and get the most out of your money by imagining alternative situations. This will make sure that every financial decision you make is in line with your short- and long-term objectives.

What is the Rate of Return (RoR)?

The Rate of Return (RoR) tells you how much money you made or lost on an investment over a certain amount of time. It is an important way to measure how well investments are doing in stocks, bonds, real estate and mutual funds.

The formula to calculate RoR is:

Rate of Return = [(Current Value – Initial Value) / Initial Value] × 100

Here, the current value represents the present worth of the investment, while the initial value is the original amount invested. Understanding RoR lets investors make informed decisions and compare different investment options. A compound interest or compounding calculator can help visualize how RoR affects wealth accumulation over time, emphasizing the advantages of long-term investing.

Time-Weighted Return (TWR)

Time-Weighted Return (TWR) is a technique for measuring the compound growth of an investment portfolio while accounting for various cash flows, such as further investments or withdrawals. It separates portfolio performance from the timing of cash flows, making it a credible indicator for comparing fund managers or investment choices.

The formula for TWR is:

TWR = [(1 + HP1) × (1 + HP2) × ⋯ × (1 + HPn)] – 1

Here,

n = Number of sub-periods

HP = Return for each sub-period

A calculator can let investors grasp how TWR reflects true growth and highlights the compounding effect over time.

Simple Interest Vs Compound Interest

There are two primary ways of calculating interest – simple interest and compound interest. Let’s understand how these ways work1 –

Simple Interest Formula

Under this method, you earn interest on the amount invested. The deposited amount remains constant, and interest is calculated over the chosen tenure.

The formula for simple interest calculation is as follows –

Simple interest = (P X R X T)

Where,

P = Principal or the deposited amount

R = Rate of interest in decimals

T = Chosen tenure in years.

For example, if you happen to deposit Rs.1 lakh for 5 years at an assumed interest rate of 12% per annum, the simple interest for the same would thus be calculated as –

Simple interest = Rs.1 lakh X 0.12 X 5 = Rs.60,000

Amount on maturity = Rs.1 lakh + Rs.60,000 = Rs.1.6 lakhs

Compound Interest Formula & Steps to Calculate

Compound interest is where the interest keeps on compounding (increasing) after each calculation. Under this method, the deposited amount keeps increasing as the interest earned is added to it. The subsequent interest is calculated on the increased principal, i.e., the deposited amount and the interest earned on it.

Thus, compound interest gives increasing returns and can help in enhancing the corpus. The formula to calculate the amount on maturity under the compound interest method is as follows –

Amount = P (1 + R) ^T

If the compounding is done more than once during the year, the formula changes as follows –

Amount = P (1 + R/N) ^ (T X N)

Where,

P = principal or the deposited amount

R = rate of interest in decimals

T = deposit tenure

N = frequency of compounding

For instance, if you deposit Rs.1 lakh for 5 years at a rate of 12% per annum, the amount would be calculated as follows –

Amount = Rs.1 lakh (1 + 0.12) ^ 5 = Rs.176,234.

If the interest is compounded half-yearly, the frequency will become 2. In this case, the amount would be calculated as follows –

Amount = Rs.1 lakh (1 + 0.12/2) ^ 5 X 2 = Rs.179,085

How To Improve Your Savings With The Power Of Compounding?

Improving your savings effectively requires investing wisely. A calculator is a practical tool that allows you to see how your investments can grow when interest is reinvested consistently. It can assist you in seeing the long-term benefits of compounding and planning for financial milestones such as retirement, children’s education, or major purchases.

Here are some steps you can take, along with the usage of a compound interest calculator, to grow your savings as well as investments.

Start As Early As Possible

If there is one tip that can help your investments grow, it is this. As you have already seen in the previous segment, starting early gives you a significant advantage. This is primarily since the power of compounding grows stronger over time. Therefore, always start early, even if it means that you might have to invest a lower amount of money.

While the investment amount is important, time is what matters the most with respect to power of compounding. Once you have started investing, you could always increase the amount of contributions that you make towards your investment as the years go by.

But by holding off on your investments for a later part of your life, you tend to miss out on earning interest on interest for the initial few years. This might end up increasing the time you take to reach your financial goals. And even after increasing the amount of contributions, you might still not be able to build a desirable corpus if you start investing only later on in your life.

Reduce Your Spending Habits

While starting early is the best way to utilize the power of compounding, in order to fully maximize its potential, it is equally important to allocate enough money as you can towards your investments.

One way to accomplish this feat is to introduce the concept of budgeting into your life. By eliminating wasteful and unnecessary expenditures, you get to save a lot more of your income, which can then be directed towards your investment options that can help you achieve your life goals.

You could go about this by first jotting down all of your monthly expenses. And then, you need to pick and choose the expenses that are essential and necessary for your lifestyle such as rent, electricity, groceries, and food etc. Once you’ve done that, all that’s remaining for you to do is to eliminate the other expenses that you incur in a month which may not be necessary.

Invest Wisely

A lot of the investment options that utilize the power of compounding allow you to customize various aspects of your investment. Some of them give you the freedom to even choose the frequency of your investment contributions.

Patience Is Key

As you’ve already seen previously, the power of compounding works best only when you give the investment option an adequate time frame to work its magic. And so, with the power of compound interest, it might take time to build a large enough corpus to help you achieve your life goals or desired financial goals.

Therefore, it is essential to stay patient with your investment and stay invested for a longer duration. If you’re searching for hard and fast returns on investment, compounding may not be the right option for you. But, if you value long-term wealth creation, amongst the few available options in the market that can match your expectation are plans that provide for power of compounding interest.

While contributing Rs. 5,000 each month may not seem like much, when you give compounding enough time to work, this small investment is very much capable of transforming into a desirable investment corpus.

Maintain Discipline

To be able to fully maximize the return generating capability of your investments, one of the key things that you should follow is discipline. Only by being disciplined with your investment contributions can you ever hope to utilize the full power of compound interest.

Investing regularly in the option of your choice is extremely essential to build a large investment corpus. Once you have chosen the frequency of your investment contributions, it is a good idea to stick to the schedule.

By straying away from the schedule and skipping payments, you not only increase the time taken to reach your goals, but also make the entire process of compounding less effective.

Conclusion

By understanding the power of compounding, you will realise the importance of systematically growing your wealth over time by starting early and being patient and consistent throughout the journey. No wonder Albert Einstein called the Compound Interest as the eighth wonder of the World. The sooner you get started the better it will start working for you—and a penny saved today could mean millions in retirement.

Term Insurance Plans

Insurance Coverage Plans

Affordable Term Plans

Policy Term Plans

Insurance for All

Insurance Made Easy

ULIP Plans

Savings Plan

Endowment Plans

Child Insurance Plan

Retirement Plans

NRI Plans

Term Insurance Plans

ULIP Plans

Savings Plan

Retirement Plans

Endowment Plans

Life Insurance Calculators

Rider Plans

Group Plans

Know About SISO

Fund Performance

ULIP Plans

Tools & Calculators

Fund performance

Life Insurance Guide

Tools & Calculators

Compound Interest Calculator

Overview

What is Compound Interest?

What Is The Power Of Compounding?

How Does The Power Of Compounding Work?

How To Use Bajaj Life Insurance Power Of Compounding Calculator?

Compound Interest Example

How can a Compound Interest Calculator Help You?

Precise Outcomes

Fast & Simple

Diverse Investment Options

Helps in Financial Planning

Informed Decisions

What is the Rate of Return (RoR)?

Time-Weighted Return (TWR)

Benefits Of The Compound Interest Calculator

Ease Of Use

Saves Time

Facilitates Financial Planning

Free-Of-Charge Usage

Enables Comparison Of Multiple Scenarios

Simple Interest Vs Compound Interest

Simple Interest Formula

Compound Interest Formula & Steps to Calculate

How To Improve Your Savings With The Power Of Compounding?

Start As Early As Possible

Reduce Your Spending Habits

Invest Wisely

Patience Is Key

Maintain Discipline

Conclusion

Frequently Asked Questions

1. What Is Daily, Monthly & Yearly Compounding?

2. What Are Compound Interest Investments?

3. What is the difference between simple interest and compound interest?

4. What are the advantages of compound interest?

5. What is the magic of compounding?

6. What does compounding interest mean?

7. What is the formula for calculating compound interest?

8. How to use the compound Interest calculator by Bajaj Life Insurance?

9. How often is interest compounded?

10. Is it better to compound daily or monthly?

11. What investments offer power of compounding benefits?

12. Can the power of compounding make you rich?

13. What Is Daily, Monthly & Yearly Compounding?

Customer Speaks

Life Insurance Guide

Articles

Calculators

Videos

Power of compounding investments

Power of compounding math explained

Do Long Term Investments Provide Better Returns?