What is the Rule of 72?

The Rule of 72 is a quick mental shortcut: divide 72 by the annual interest rate to estimate how many years it takes to double your investment. At 8% annual return, 72 / 8 = 9 years to double. At 12%, it takes 72 / 12 = 6 years. This is an approximation that works well for rates between 6% and 15%.

Compound Interest Calculator

Q: What is compound interest?

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest which only grows on the principal, compound interest grows on an ever-increasing balance, leading to exponential growth over time.

Q: How does compounding frequency affect returns?

More frequent compounding means interest is calculated and added to the principal more often, giving more opportunities for the interest itself to earn interest. Daily compounding yields slightly more than monthly, which yields slightly more than quarterly, which yields slightly more than annually, for the same nominal rate.

Q: What is the difference between compound and simple interest?

Simple interest is calculated only on the original principal: SI = P × r × t. Compound interest is calculated on the growing balance. Over long periods, compound interest produces dramatically higher returns. A ₹1 lakh investment at 10% for 20 years earns ₹2 lakh in simple interest but ₹5.73 lakh in compound interest (annual compounding).

See how your money grows with the power of compounding across different frequencies.

💹 What is Compound Interest?

Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. Albert Einstein reportedly called it the "eighth wonder of the world," and for good reason. Unlike simple interest, which only earns returns on the original amount, compound interest earns returns on an ever-growing balance - interest on interest, on interest.

The effect is modest in the short term but dramatic over long periods. Consider ₹1 lakh invested at 10% annually. After 1 year, simple and compound interest both produce ₹10,000. But after 20 years, simple interest produces ₹2 lakh in total interest (₹10,000 × 20 years), while compound interest produces ₹5.73 lakh - nearly three times more. At 30 years, the gap widens further: ₹3 lakh (simple) vs ₹16.45 lakh (compound).

Compounding frequency also matters. Interest can compound annually (once per year), quarterly (4 times per year), monthly (12 times), or even daily (365 times). More frequent compounding means interest is added to the principal more often, which gives that interest more chances to earn its own interest. Over decades, daily compounding produces meaningfully more than annual compounding at the same nominal rate.

Compound interest is the engine behind wealth-building instruments like FDs, PPF, mutual funds, and equity investments. It is also the force that makes debt expensive - the same compounding mathematics that works in your favour as an investor works against you as a borrower. Understanding how compounding works is one of the most valuable pieces of financial knowledge you can have.

📐 Compound Interest Formula

A = P × (1 + r/n)^n×t

A = Final amount (principal + interest)

P = Principal amount (initial investment)

r = Annual interest rate as a decimal (e.g. 8% = 0.08)

n = Compounding frequency per year (1=annual, 4=quarterly, 12=monthly, 365=daily)

t = Time in years

The interest earned = A − P. The growth multiplier = A ÷ P. For example, if A = 2P, the investment has doubled (100% growth, multiplier of 2×).

Effective Annual Rate (EAR) accounts for compounding: EAR = (1 + r/n)ⁿ − 1. A 10% rate compounded monthly has an EAR of (1 + 0.10/12)¹² − 1 = 10.47%, meaning your effective annual return is slightly higher than the nominal 10%.

📖 How to Use This Calculator

Steps to Calculate Compound Interest

Enter the principal amount - the initial sum you are investing or depositing.

Enter the annual interest rate as a percentage. For FDs, this is the offered rate. For equity, use an assumed return rate.

Set the time period in years. Try comparing 10, 20, and 30 years to see the dramatic long-term effect of compounding.

Select compounding frequency. Use Quarterly for most bank FDs in India, Monthly for RD calculations, or Annual for general investments.

Click Calculate to see the final amount, total interest earned, and growth percentage, along with a pie chart.

💡 Example Calculations

Example 1 — FD-style Investment

₹5,00,000 at 7.5% for 3 years, quarterly compounding

r = 0.075, n = 4, t = 3 → A = 5,00,000 × (1 + 0.075/4)^4×3

A = 5,00,000 × (1.01875)¹² = 5,00,000 × 1.2514 = ₹6,25,718

Interest Earned = ₹1,25,718 · Growth = 25.1%

Try this example →

Example 2 — Long-term Wealth Building

₹10,00,000 at 12% for 20 years, annual compounding

A = 10,00,000 × (1 + 0.12)²⁰ = 10,00,000 × 9.6463

Final Amount = ₹96,46,293 · Growth = 864.6% (nearly 9.6x)

Try this example →

❓ Frequently Asked Questions

What is compound interest?+

Compound interest is interest calculated on both the principal and the previously accumulated interest. Each period, the interest earned is added to the balance, and the next period's interest is calculated on this larger balance. This creates an exponential growth curve rather than the linear growth of simple interest.

What is the compound interest formula?+

A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual rate as a decimal (e.g. 0.08 for 8%), n is the number of compounding periods per year, and t is the time in years. Interest earned = A - P.

How does compounding frequency affect returns?+

More frequent compounding increases returns, but with diminishing additional benefit. For a ₹1 lakh investment at 10% for 10 years: annual compounding gives ₹2,59,374; quarterly gives ₹2,68,506; monthly gives ₹2,70,704; daily gives ₹2,71,791. The jump from annual to monthly is significant; daily vs monthly adds only ₹1,087 more.

What is the difference between compound and simple interest?+

Simple interest is calculated only on the principal: SI = P × r × t. Compound interest grows on the cumulative balance. For ₹1 lakh at 10% for 20 years: simple interest = ₹2 lakh total (₹1 lakh interest). Compound interest (annual) = ₹6.73 lakh total (₹5.73 lakh interest). The difference becomes even more dramatic at higher rates or longer periods.

Does compounding frequency significantly affect long-term returns?+

Yes, but the difference diminishes as compounding frequency increases. At 10% nominal rate, ₹1 lakh over 20 years: annually = ₹6.73 lakh; monthly = ₹7.33 lakh; daily = ₹7.39 lakh. The jump from annual to monthly is meaningful (+₹60,000), but from monthly to daily is small (+₹6,000). For practical investing, monthly compounding (standard for SIPs and most mutual funds) captures most of the benefit of frequent compounding without the complexity of continuous compounding.

How much will ₹1 lakh grow to in 10 years at 10% compound interest?+

At 10% annual compound interest, ₹1 lakh grows to approximately ₹2,59,374 in 10 years - a gain of ₹1,59,374. With monthly compounding at the same nominal rate, it grows slightly more to ₹2,70,704. Compare this to simple interest on the same inputs: ₹1 lakh at 10% for 10 years earns only ₹1,00,000 in interest, for a total of ₹2,00,000. Compound interest earns ₹59,374 more - the difference that makes investing in compounding instruments so powerful over time.

What is the effective annual rate (EAR) and why does it matter?+

The Effective Annual Rate (EAR) is the actual annual return after accounting for within-year compounding. A nominal 10% rate compounded monthly has an EAR of (1 + 0.10/12)^12 - 1 = 10.47%. EAR matters when comparing financial products with different compounding frequencies - a savings account offering 9% compounded daily yields more than one offering 9% compounded annually. Always compare EAR, not nominal rates, when choosing between deposits or loans.

Is compound interest good or bad?+

Compound interest is powerful in both directions. As an investor, it works for you - money grows exponentially over time. As a borrower (credit cards, personal loans), it works against you - unpaid balances grow quickly because interest is added to the outstanding balance and itself begins accruing interest. Credit card debt at 36–42% annual interest with monthly compounding can nearly double in under 2 years if not repaid. The same math that makes investing rewarding makes high-interest debt dangerous.

What is continuous compounding?+

Continuous compounding is the theoretical limit of compounding infinitely often per year, expressed as A = P × e^(rt), where e ≈ 2.71828. For ₹1 lakh at 10% for 10 years: A = 1,00,000 × e^(0.10×10) = 2,71,828. Daily compounding gives ₹2,71,791 - almost identical. In practice, the difference between daily and continuous compounding is negligible (less than 0.01% annually). Continuous compounding is mainly used in theoretical finance and options pricing models.

How does inflation affect compound interest returns?+

Inflation erodes the purchasing power of your compounded returns. The real return is approximately: Real Return = Nominal Return - Inflation Rate. If your FD earns 7% compounded annually but inflation is 6%, your real return is only ~1%. To calculate real corpus value, use the real rate in the compound interest formula. For long-term goals like retirement, always plan using real returns (inflation-adjusted), not nominal rates, to avoid overestimating future purchasing power.

🔗 Related Calculators

📌 Quick Tips

💡More frequent compounding (monthly vs annually) results in slightly higher returns over long periods.

💡The 'Rule of 72': divide 72 by the annual rate to estimate how many years it takes to double your money.

💡Compound interest works against you with debt too - the same math makes credit card debt expensive.

💡Use this calculator as a starting point, then consult a professional for high-stakes decisions.

💡Share the URL after calculating — the address bar updates with your inputs for easy sharing.