Ever wondered how that tiny unpaid amount on a person’s credit card bill builds up over time into a huge amount—that’s the power of compounding at play. Therefore, it’s important to be financially disciplined and make timely payments to ensure that you don’t have to pay exorbitant amounts on their credit card bills. Now if we look the other way around, you can use that same compounding interest to generate exceptional returns on your investments if you know how to go about it and plan accordingly.
But first, let’s understand the power of compounding!
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What is Compound Interest?
A compound interest is a type of interest on loans and credit cards that’s calculated on the principal and any interests that have been accrued previously. It can be referred to simply as, ‘interest on interest’ which makes the amount grow at an incredibly faster rate when compared to a traditional interest model. This makes compound interest one of the fastest ways to grow your money.
If you are an investor or would like to invest in the market to make the best from the power of compounding, using a compound interest calculator is the best way forward. You can reap the benefits of the power of compounding especially with long-term 80C investments options.
What is a Compound Interest Calculator?
A compound interest calculator is an online tool that helps you cut off the manual process of having to calculate compounding interest. It can help you quickly estimate the returns you can get across your investments in plans such as mutual funds that are 80 C options and also give you tax breaks. Since calculating compounding interest rates can be a complex process, it can be difficult for someone to properly estimate the correct results.
Now that you are familiar with the concept of compound interest and how using an online compound interest solves the issue of how to calculate compound interest, let’s look at the benefits of using a compound interest calculator.
Benefits of Using an Online Compound Interest Calculator
- It’s Reliable
Online compound interest calculators are highly reliable to determine how much investments one needs to make to get the desired returns to meet future financial goals.
- They are Customizable
Multiple compound interest calculators give you the option to customize them by assigning investments based on your needs and requirements.
- Easily Calculate Total Returns
It helps you take out the guesswork by giving you a clear picture of how much you can make by regularly investing the instrument of your choice through the power of compounding.
- Helps you Plan your Finances Better
Financial planning is key to ensuring that you invest in diversified financial instruments to get the maximum benefit out of compounding interest rates. An online compound interest calculator assists investors to understand and calculate their investment corpus clearly to achieve desired objectives.
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- Helps you Compare Across Plans
Diversifying your investment portfolio holds the key to maximizing your returns. The calculator helps you compare multiple plans; thereby, helping you choose the ones that seem promising and can generate the kind of returns you expect throughout the duration of the investment period.
How To Use a Compound Interest Calculator?
So, we have had a look at compound interest in general, and their benefits. Now let’s look at how you can use this online tool to benefit from the power of compounding and watch your investments grow at a phenomenal pace.
Using a compound interest calculator is a very simple process. Here’s how it works:
- Determine the principal amount you wish to invest and then move the slider on the compound interest to see the returns you can expect on the principal amount at maturity
- Choose the payment frequency, monthly/yearly, half yearly, or quarterly
- Select the time period for payment
- Choose the duration of the investment
Lastly, Let’s Have a Look at How the Power of Compounding Works
The way compounding works is by reinvesting your investment into the same investment option. In doing so, you not only get interest on the principal amount, but also on the accrued interests. This helps investors maximize their earnings over time. For maximum effect, it’s best to make frequent investments to multiply your savings. This lets you reach your financial objectives much faster compared to traditional investment options.
So, if you still haven’t tried investing in the market, and would like money to grow in order to meet all of the financial goals you have set for the future, use the compound interest calculator and start investing today for a brighter, financially secure future for yourself and your family!
