Compound Interest Calculator
See compounding at work — principal, rate, tenure and compounding frequency in, maturity value and total interest out, with year-wise growth.
Year-wise growth
| Year | Invested | Value at year end |
|---|---|---|
| 1 | ₹1,00,000 | ₹1,05,000 |
| 2 | ₹1,00,000 | ₹1,10,250 |
| 3 | ₹1,00,000 | ₹1,15,763 |
| 4 | ₹1,00,000 | ₹1,21,551 |
| 5 | ₹1,00,000 | ₹1,27,628 |
What is Compound Interest?
Compound Interest is the interest earned not only on your initial principal investment, but also on the accumulated interest from previous periods. Widely described as the "Eighth Wonder of the World," compounding creates an exponential snowball effect: as interest generates its own interest, your money accelerates in growth over time.
Understanding compounding mechanics is the single most critical concept in personal finance. Whether you are investing in mutual funds, bank fixed deposits, PPF, or paying off credit card and mortgage debt, this calculator simulates how compounding frequencies (daily, monthly, quarterly, semi-annually, or annually) impact your final wealth.
Compounding Frequency & The Effective Annual Rate (EAR)
The more frequently interest is calculated and added back to principal, the faster your wealth compounds:
- Compounding Frequencies: Lenders and savings schemes use different standard compounding frequencies:
- Annually (n = 1): Used by PPF, NSC, and sovereign gold bonds.
- Semi-Annually (n = 2): Used by Treasury bills and central government securities.
- Quarterly (n = 4): Standard convention for Indian commercial bank fixed and recurring deposits.
- Monthly (n = 12): Standard convention for mutual fund SIPs and personal loans.
- Daily (n = 365): Used by money market funds and credit card revolving balances.
- Effective Annual Rate (EAR): Because of frequent compounding, the actual yield earned is higher than the nominal stated rate:
EAR = [ 1 + (r ÷ n) ]ⁿ − 1. A 10% nominal rate compounded monthly yields an effective annual return of 10.47%!
The Universal Compound Interest Formula
A = P × [ 1 + (r ÷ n) ]^(n × t)
- A — Final maturity amount (Principal + Total Compound Interest).
- P — Initial principal balance invested.
- r — Nominal annual interest rate as a decimal (e.g. 8% → 0.08).
- n — Compounding frequency per year (1 for annual, 4 for quarterly, 12 for monthly, 365 for daily).
- t — Total investment duration in years.
- Compound Interest (CI): Exactly
A − P.
A Worked Example: ₹1,00,000 at 8% Over 10 Years Across Compounding Frequencies
Comparing Compounding Frequencies for a ₹1 Lakh Investment at 8% Over 10 Years:
- Simple Interest (No Compounding): Final Amount: ₹1,80,000 | Interest: ₹80,000
- Annually Compounded (n = 1): Final Amount: ₹2,15,892 | Interest: ₹1,15,892
- Quarterly Compounded (n = 4 — Bank FDs): Final Amount: ₹2,20,804 | Interest: ₹1,20,804
- Monthly Compounded (n = 12 — Mutual Funds): Final Amount: ₹2,21,964 | Interest: ₹1,21,964
- Daily Compounded (n = 365): Final Amount: ₹2,22,535 | Interest: ₹1,22,535
Compounding beats simple interest by over ₹42,500 on a ₹1 Lakh deposit over 10 years!
Compounding Acceleration: Growth of ₹1 Lakh at 10% Over 30 Years
| Year Milestone | Principal | Simple Interest Value | Compounded Value (Annual) | Compounding Advantage |
|---|---|---|---|---|
| Year 5 | ₹1,00,000 | ₹1,50,000 | ₹1,61,051 | +₹11,051 (+7.4%) |
| Year 10 | ₹1,00,000 | ₹2,00,000 | ₹2,59,374 | +₹59,374 (+29.7%) |
| Year 15 | ₹1,00,000 | ₹2,50,000 | ₹4,17,725 | +₹1,67,725 (+67.1%) |
| Year 20 | ₹1,00,000 | ₹3,00,000 | ₹6,72,750 | +₹3,72,750 (+124.3%) |
| Year 25 | ₹1,00,000 | ₹3,50,000 | ₹10,83,471 | +₹7,33,471 (+209.6%) |
| Year 30 | ₹1,00,000 | ₹4,00,000 | ₹17,44,940 | +₹13,44,940 (+336.2%) |
Demonstrates the hockey-stick compounding curve: in the first 10 years interest adds ₹1.59 Lakh; in the final 10 years interest adds over ₹10.7 Lakh!
The Rule of 72 & The Double-Edged Sword of Debt Compounding
Strategic financial principles based on the laws of compounding:
- The Rule of 72 (Doubling Time): Divide 72 by your annual interest rate to find the exact number of years it takes for your investment to double:
Years to Double = 72 ÷ Interest Rate. At 12% return, your money doubles every 6 years (72 ÷ 12); at 8%, it doubles every 9 years. - Debt Compounding (The Wealth Destroyer): Compounding works against you on high-interest revolving debt. Credit card balances compounding daily at 36% to 42% p.a. double your debt in less than 2 years! Clearing high-interest debt early is the highest guaranteed return you can achieve.
Compound interest questions, answered
Crucial answers on compounding mechanics, simple vs compound interest, the Rule of 72, and inflation impact.
In Simple Interest, interest is earned strictly on the original principal throughout the investment duration. In Compound Interest, interest is earned on both the initial principal and the accumulated interest from past periods, generating accelerating exponential growth.
The higher the compounding frequency, the greater your final return. For example, ₹1 Lakh at 10% for 10 years grows to ₹2,59,374 with annual compounding, ₹2,68,506 with quarterly compounding, and ₹2,70,704 with monthly compounding.
The Rule of 72 is a quick mental math shortcut to estimate how many years it takes for an investment to double: divide 72 by the annual return rate (Years = 72 ÷ Rate). For instance, an investment earning 10% per year doubles in approximately 7.2 years.
The Nominal Rate is the advertised annual interest rate. The Effective Annual Rate (EAR) reflects the true annual return earned after accounting for intra-year compounding (quarterly, monthly, or daily). EAR is always higher than the nominal rate when compounding occurs more than once a year.
While compounding grows your nominal rupee corpus, inflation continuously erodes purchasing power. To calculate real wealth growth, subtract the expected inflation rate from your nominal return: Real Return ≈ Nominal Return − Inflation Rate. At 10% return and 6% inflation, your real compounding rate is approximately 4%.
Almost all modern wealth-building instruments in India compound interest: Public Provident Fund (PPF - annually), Bank Fixed Deposits (quarterly), Recurring Deposits (quarterly), National Savings Certificates (annually), and Mutual Funds (daily NAV compounding).
Mutual funds do not declare a fixed interest rate. Instead, profits earned by companies in the fund portfolio (dividends and capital gains) are reinvested into the fund, increasing the fund's Net Asset Value (NAV) daily. Over multi-year horizons, this creates powerful compounding returns.
Because the compounding formula raises time to the power (exponent n × t). Starting an investment 10 years earlier with a modest monthly sum often builds a larger final corpus than investing three times as much money 10 years later!
Credit card issuers compound interest daily on revolving unpaid balances at annual percentage rates (APR) of 36% to 42%. This rapid compounding causes unpaid balances to explode exponentially if you pay only the minimum due.
Taxability depends on the investment vehicle. Fixed and recurring deposit interest is taxable annually at your slab rate. Mutual fund capital gains are taxed only upon redemption under capital gains tax rules. PPF and SSY interest is 100% tax-free under Section 10.