# Monthly Compound Interest Formula

Compound interest is an interest of interest to the principal sum of a loan or deposit. The concept of compound interest is the interest adding back to the principal sum so that interest is earned during the next compounding period.

The formula is given as:

Monthly Compound Interest = Principal

$$\begin{array}{l}(1+\frac{Rate}{12})^{12*Time}\end{array}$$
– Principal

### Solved Example

Question: A sum of Rs. 5000 is borrowed and the rate is 8%. What is the monthly compound interest for 2 years?

Solution:

Monthly Compound Interest = Principal

$$\begin{array}{l}(1+\frac{Rate}{12})^{12*Time}\end{array}$$
– Principal

Monthly Compound Interest = 5000

$$\begin{array}{l}(1+\frac{8}{100*12})^{12*2}\end{array}$$
– 5000

Monthly Compound Interest = 5000 × 1.1738 – 5000

= 5869 – 5000 = 869

The monthly compound interest for 2 years is Rs. 869.