Your wealth grows exponentially due to compounding that is subject to the FD interest rates 2023. To accelerate the process of earning a profit, the profit earned is added back to the principal amount and then reinvested. Compound interest consists of interest earned on both the original principal amount and that principal amount. As a result, the amount invested in your Bajaj Finserv investments grows exponentially over time as the interest earned in each period is reinvested. The reasons below are some of the benefits of compound interest:

Increased earning potential

With compound FD interest rates 2023, the amount invested grows faster than with simple interest since the interest earned on both the principal and the interest earned in previous periods is included. As a result, the final amount can grow over time.

Long-term wealth building

The growth of the invested amount over time is accelerated by compound interest, making compound interest an effective tool for long-term wealth development.

Simplicity

The concept of compound FD interest rates 2023 is simple to understand and easy to calculate, making it one of the most popular investment choices for new investors.

Passive income

A passive income stream can be generated over time through compound interest investments, such as fixed deposits and retirement accounts.

Inflation protection

Over time, compound interest can help one’s savings maintain purchasing power by earning a higher return than inflation.

Over the long term, compound interest is the best choice, and the return rate depends on the investment type and its terms. The past performance of an investment does not guarantee future success; all investments involve some level of risk.  

An interest rate that is compounded by taking into consideration both the principal amount and the interest earned on it is called compound interest. In this way, the amount invested grows exponentially over time as interest is reinvested from period to period.

Compound interest can be illustrated with the following example

Consider an investment of Rs.100 at an annual interest rate of 5%. As of the end of the first year, the investment is worth Rs.105 (Rs.100 + Rs.5 in interest). If you increase your balance to Rs.105 in the second year, you will earn Rs.5.25 in interest (Rs.105 x 5%). There will be a balance of Rs.110.25 (Rs.105 + Rs.5.25) at the end of the second year.

Over time, you can see how interest earned during each period is reinvested, causing the invested amount to grow exponentially.

A fixed deposit (FD) account is another example, where an investor deposits a fixed amount for a specified period, usually one to ten years, at a fixed interest rate. An investor earns interest on the interest earned each year, which is compounded and added to the principal amount.

Assuming annual compounding, the balance at the end of 5 years will be Rs.12,762.83 if an investor invests Rs.10,000 in a 5-year FD at 5%.

Using an online calculator is accurate and more accessible. 

In order to calculate compound interest, you can use a financial FD interest calculator or an online compound interest calculator. Here is how to calculate compound interest using a financial calculator:

• Enter the principal amount: 

You need to enter the amount of money you are investing or depositing.

• Enter the interest rate: 

The annual interest rate should be entered as a decimal. For example, 5% would be entered as 0.05.

• Enter the number of compounding periods: 

A value of 1 indicates an annual compounding of interest. A value of 2 indicates a semi-annual compounding of interest.

• Enter the number of years: 

A deposit or investment will remain in the account for this time.

• Calculate the compound interest: 

A present value calculation shows how much you would need to invest today to achieve a desired future value. The future value is what you will have after the specified number of years.