Compound Interest Calculator
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
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
💡 Example Calculations
Example 1 — FD-style Investment
₹5,00,000 at 7.5% for 3 years, quarterly compounding
Example 2 — Long-term Wealth Building
₹10,00,000 at 12% for 20 years, annual compounding
❓ Frequently Asked Questions
🔗 Related Calculators
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.
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, n is the number of times interest compounds per year, and t is the time in years.
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.
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).
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%.
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. The formula: A = 1,00,000 × (1.10)^10 = 2,59,374. With monthly compounding at the same nominal rate, it grows slightly more to ₹2,70,704. This illustrates the significant difference between compound interest and simple interest, where ₹1 lakh at 10% for 10 years earns only ₹1,00,000 in interest.
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 compounding within the year. 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 investments or loans.
Is compound interest good or bad?
Compound interest is powerful in both directions. As an investor, it works in your favour - your money grows exponentially over time. As a borrower (credit cards, personal loans), it works against you - unpaid balances grow quickly. Credit card debt at 36–42% annual interest with monthly compounding can double in under 2 years if not repaid. The same mathematical principle that makes long-term investing so rewarding makes high-interest debt so dangerous.
What is continuous compounding and how does it differ from daily compounding?
Continuous compounding is the theoretical limit of compounding infinitely often per year. The formula is A = P × e^(rt), where e ≈ 2.71828. For ₹1 lakh at 10% for 10 years: continuously compounded A = 1,00,000 × e^(0.10×10) = 2,71,828. Daily compounding gives ₹2,71,791 - almost identical. In practice, daily and continuous compounding differ by less than 0.01% annually, so continuous compounding is mainly a theoretical concept used in financial mathematics.