Periodic Compound Interest Calculator

Calculate the periodic amount you will pay/recieve when borrow/investing funds.

Periodic Compound Interest is The Hidden Cause of Higher Interest Rates

Have you thought about how much interest are you actually paying on your current loans or on the outstanding balance of a credit card? Sure, bank officials give you all the information you need, the total percentage of the rate of interest you will be charged annually. But did you know that the interest rate compounding monthly or quarterly will cost you more than the figures actually implied?

The periodic compound interest is the true picture of the actual rate of interest. The importance of periodic compound interest is not only limited to just the cost of paying the interest, understanding it is also crucial with regard to earning interest with financial products, such as fixed deposits and certain mutual funds.

Understanding the concept of interest rate and compounding

Compounding is generally referred to in relation with interest. Interest is basically a reward for lending money. Banks charge it on loans and credit cards and investors gain it on fixed deposits or any other scheme that uses the amount invested by the investors. You may even collect interest from money you have kept in your savings account because the money you have saved is available for the bank to be used.

Compounding means the earned or payable interest is added to the principal amount of investments. The addition of the earned interest to the principal amount results into a bigger base for interest occurrence in the next compounding period. This essentially means that your interest earns interest.

How does periodic compound interest rate work?

The periodic compound interest is directly affected by the compounding period. A compounding period means the time frame after which the earned or payable interest is added to the principal amount of investments. The more frequently an investment is compounded the more it grows.

The basic periodic compound interest is calculated with the following formula:

Where:

• A = Accrued amount (principal + interest)
• A = P + I
• P = Principal Amount
• I = Interest Amount
• R = Rate of Interest per period in percent
• r = Rate of Interest per period as a decimal
• r = R/100
• t = Number of Periods (could be monthly, quarterly, semiannually or annually)

Let's look at an example, we will use GBP (Great British Pounds) as an example currency: say we have two options for investing £1,000, the first option gives an annual interest rate of 7%, but the interest compounds quarterly and the other option pays an annual interest rate of 7.125% compounded annually.

In 5 years time the first option will bring the total amount (principal + interest) to £1,414.78, whereas the total amount of the second option will result in a total amount of £1,090.62. Even though the interest rate is higher in option 2, option 1 results in higher effective rate because of compounding.

Use the Compound Interest Calculator to discern the actual rate of interest

The Compound Interest Calculator designed by iCalculator can make your periodic compound interest calculations simpler. It can help you in many ways as follows:

• Choose your option: The calculator can be used in 4 different ways, you can find out the total amount, interest rate, compounding period and principal amount by entering the data for the other 3 options.
• Cost or income: The results will show you the numbers that are effective, it may be the interest you are or would be paying for a loan, or the interest you would be earned on an investment.
• Compare and take a pick: You may use the results obtained from the calculator to compare the rates offered by various banks and pick an option that works best for you, or perhaps shop around for better options.

To calculate any of these factors you just have to select the correct option from the dropdown list and enter the following details:

• Total (P+I): Total amount, principal amount plus interest amount to be entered here, not required when solving total (p+i). This will show you the total amount after occurrence of all the compounding periods, at the selected rate of interest on the principal amount.
• Principal: Enter the principal amount. Use this option to find out the base principal amount on the basis of the total amount, rate per period and compounding periods.
• Rate per period: Enter the interest rate per compounding period. Input the total amount (P+I) and the compounding period to determine the rate of interest.
• Number of periods: Enter the number of compounding periods. It will help you find out the number of compounding periods that resulted in the total amount at a given rate of interest.