About Monthly Compound Interest Formula
Compound interest per month is calculated using the monthly compound interest formula. Interest on interest is a common term for compound interest. The first period of compound interest is comparable to the first period of simple interest, but the second period of time is different. Interest is computed on the interest earned on the preceding
period of time beginning with the second period, which is why it is called interest on interest. The monthly compound interest formula is also known as the interest on interest formula since the interest is calculated monthly and added back to the principal. The ultimate sum, excluding the principal, is called total compound interest.
Compound Intrest = Amount-Principle
CI = P(1 + (r/12) )12t - P
- P= principle Amount
- r=Rate of interest
- t= time
Monthly Compound Interest Formula
The difference between the final amount and the principal is used to obtain the compound interest formula: CI = Amount - Principal. The monthly compound interest formula is as follows: CI = P(1 + (r/12) )12t - P
Where,
- P = principal amount,
- r = interest rate in decimal form,
- t = time.
Derivation of Monthly Compound Interest Formula
The formula for calculating the compound interest is as,
CI = P (1 + r/100)2
- P = principal amount
- r = rate of interest
- n = frequency or no. of times the interest is compounded annually
- t = overall tenure.
If you compute interest on a monthly basis, the interest is calculated for each month, and the total is compounded 12 times a year because there are 12 months in a year. When the principal is compounded monthly, the compound interest formula is as follows:
CI = P(1 + (r/12) )12t - P
The compound interest for a month is calculated here (time period). As a result, the interest rate r is split by 12 and the time period is divided by 12 times.
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