Compound Interest Calculator
Calculate compound interest with flexible compounding frequencies.
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Interest
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Simple vs Compound Interest
Simple Interest
Compound Interest
You earn more with compound interest!
What is Compound Interest?
Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. Often called "interest on interest," compound interest makes your money grow faster compared to simple interest, where interest is only calculated on the principal amount. Albert Einstein reportedly called compound interest "the eighth wonder of the world," highlighting its powerful wealth-building potential.
Compound Interest Formula
The compound interest formula is: A = P × (1 + r/n)n×t, where A is the final amount, P is the principal (initial investment), r is the annual interest rate (as a decimal), n is the number of times interest is compounded per year, and t is the number of years. The compound interest earned is then CI = A - P. This formula works for any compounding frequency, from daily to annually.
Compounding Frequencies Explained
Interest can be compounded at different frequencies, each producing different results. Annual compounding (n=1) calculates interest once per year. Semi-annual compounding (n=2) calculates every six months. Quarterly compounding (n=4) is the most common for bank deposits in India. Monthly compounding (n=12) is typical for savings accounts and some loans. Daily compounding (n=365) produces the highest effective yield. The more frequently interest is compounded, the more total interest is earned on the same principal.
Compound Interest vs Simple Interest
The key difference lies in how interest accumulates. With simple interest, you earn the same amount of interest every year (SI = P × r × t). With compound interest, each period's interest is added to the principal, so subsequent periods earn interest on a larger base. Over short periods, the difference is small. But over long periods, compound interest significantly outperforms simple interest. For example, ₹1,00,000 at 10% for 20 years yields ₹2,00,000 as simple interest but ₹5,72,750 as compound interest (annual compounding).
Using the Compound Interest Calculator
Enter your principal amount, annual interest rate, investment period, and select the compounding frequency. The calculator instantly shows the maturity amount, total interest earned, and provides a year-by-year breakdown of how your investment grows. Experiment with different compounding frequencies to see their impact on your returns, or compare different interest rates to make informed investment decisions.
Frequently Asked Questions
Simple interest is calculated only on the principal amount (SI = P × R × T / 100). Compound interest is calculated on the principal plus accumulated interest. Over time, compound interest grows exponentially while simple interest grows linearly. For ₹1 lakh at 10% for 10 years: SI = ₹1 lakh, CI = ₹1.59 lakh.
More frequent compounding leads to higher returns because interest starts earning interest sooner. The effective annual rate increases with frequency. For 10% annual rate: annual compounding gives 10% effective rate, quarterly gives 10.38%, monthly gives 10.47%, and daily gives 10.52%.
The Rule of 72 is a quick way to estimate how long it takes to double your money with compound interest. Simply divide 72 by the annual interest rate. For example, at 8% interest, your money doubles in approximately 72/8 = 9 years. At 12%, it doubles in about 6 years.
Compound interest applies to bank FDs, savings accounts, PPF, mutual funds, education loans, home loans, and many other financial products. In loans, compound interest means you pay interest on interest if payments are delayed. In investments, it is the key to wealth creation over long periods.