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Compound Interest Calculator

Calculate how your money grows with compound interest.

Your initial investment amount
Interest rate per year
Investment duration
How often interest is added

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Enter your investment details to calculate compound interest.

Mastering Compound Interest: A Complete Guide

Compound interest is interest calculated on both the principal amount and the accumulated interest from previous periods. It's the most powerful wealth-building tool available to investors because your money grows exponentially—you earn 'interest on your interest'. The longer you invest, the more dramatic the compounding effect becomes.

Exponential Growth

Unlike simple interest which grows linearly, compound interest grows exponentially. Your interest earns interest, creating an accelerating growth pattern that becomes more powerful over time.

Time is Your Best Friend

The earlier you start investing, the more compounding works in your favor. Starting 10 years earlier can nearly double your final amount due to the exponential nature of compound growth.

Frequency Matters

How often interest is compounded affects your returns. Monthly or daily compounding produces higher returns than annual compounding because interest is calculated more frequently throughout the year.

Wealth Accumulation

Compound interest is the reason wealthy investors get richer faster. By reinvesting earnings and letting money compound over decades, wealth accumulates at an accelerating rate.

Compound Interest vs Simple Interest

Aspect Compound Interest Simple Interest
Calculation On principal + accumulated interest On principal only
Growth Pattern Exponential (accelerating) Linear (constant)
Formula A = P(1 + r/n)^(nt) A = P(1 + rt)
Best For Long-term investments Short-term loans
Returns Over Time Increasingly higher Same every year

Real-World Compound Interest Examples

Example 1: Fixed Deposit Investment

Scenario: ₹1,00,000 in FD at 6% annual rate, compounded quarterly

After 5 years: ₹1,34,392

Compound Interest Earned: ₹34,392

Comparison: Simple interest would only earn ₹30,000, showing compound interest advantage of ₹4,392

Example 2: Long-Term Savings Account

Investment: ₹50,000 at 5% annual, compounded monthly

After 10 years: ₹81,698

Compound Interest Earned: ₹31,698

Growth Multiple: Your money grew 1.63x, demonstrating the power of time and monthly compounding

Example 3: The Rule of 72 in Action
Interest Rate Years to Double Initial Amount Doubled Amount Time to Quadruple
6% 12 years (72÷6) ₹1,00,000 ₹2,00,000 24 years
8% 9 years (72÷8) ₹1,00,000 ₹2,00,000 18 years
12% 6 years (72÷12) ₹1,00,000 ₹2,00,000 12 years

The Rule of 72 helps quickly estimate doubling time. Higher interest rates reduce doubling time significantly.

Compound Interest Formula & Calculation

Compound Interest Formula

A = P(1 + r/n)nt

Compound Interest = A - P

Formula Components
  • A = Final amount (principal + interest)
  • P = Principal amount (initial investment)
  • r = Annual interest rate (as decimal, divide % by 100)
  • n = Number of times interest compounds per year
  • t = Time period in years
Step-by-Step Calculation Example

Given:

  • Principal = ₹10,000
  • Annual Rate = 8% (r = 0.08)
  • Time = 2 years
  • Compounding = Monthly (n = 12)

Calculation:

  1. A = 10,000 × (1 + 0.08/12)^(12×2)
  2. A = 10,000 × (1.00667)^24
  3. A = 10,000 × 1.1735
  4. A = ₹11,735

Result: Compound Interest = ₹11,735 - ₹10,000 = ₹1,735

Frequently Asked Questions

Compound interest is interest calculated on both the principal amount and the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal, compound interest grows exponentially because you earn 'interest on interest'. This is often called the 'eighth wonder of the world' due to its powerful wealth-building effect. The longer you let money compound, the more dramatic the growth becomes.

Compound interest is calculated using the formula: A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate, n is the compounding frequency per year, and t is time in years. For example, ₹1,000 at 10% annual rate compounded monthly for 2 years gives A = 1,000(1 + 0.10/12)^(12×2) = ₹1,219.39, meaning you earn ₹219.39 in compound interest.

Simple interest is calculated only on the principal amount and remains constant each year. Compound interest is calculated on both the principal and accumulated interest, causing it to grow exponentially. Example: ₹1,000 at 10% for 2 years: Simple Interest = ₹1,200 (₹200 interest), Compound Interest = ₹1,210 (₹210 interest). The difference increases significantly with time, making compound interest far superior for long-term investments.

Compounding frequency is how often interest is calculated and added to your principal. Common frequencies are: Annually (once per year), Semi-Annually (twice per year), Quarterly (4 times per year), Monthly (12 times per year), and Daily (365 times per year). More frequent compounding results in higher final amounts because interest is calculated more often, and each time it's calculated, it earns interest on the accumulated amount.

Your earnings depend on principal, rate, time, and compounding frequency. Example: ₹10,000 at 8% annual rate compounded monthly: After 5 years = ₹14,898 (₹4,898 interest), After 10 years = ₹22,196 (₹12,196 interest), After 20 years = ₹49,268 (₹39,268 interest). Doubling your time period nearly doubles your earnings due to the exponential nature of compound interest. Starting earlier makes a dramatic difference.

Higher compounding frequency results in higher returns. For ₹1,000 at 10% for 1 year: Annually = ₹1,100, Semi-Annually = ₹1,102.50, Quarterly = ₹1,103.81, Monthly = ₹1,104.71, Daily = ₹1,105.16. The difference is small for short periods but becomes significant over longer periods, especially with higher interest rates. This is why savings accounts with monthly compounding beat annual compounding.

The Rule of 72 is a quick way to estimate how long it takes for your money to double. Divide 72 by the annual interest rate to get approximate years to double. Example: At 8% interest, 72 ÷ 8 = 9 years to double. At 12% interest, 72 ÷ 12 = 6 years to double. This rule works well for rates between 5% and 10% and helps understand the power of compound interest and the importance of investing early.

To maximize compound interest: (1) Start investing early - time is your greatest advantage, (2) Invest regularly - add to your principal periodically, (3) Seek higher interest rates - compare options like FDs, bonds, mutual funds, (4) Choose more frequent compounding - monthly or daily beats annual, (5) Minimize withdrawals - let money compound undisturbed, (6) Reinvest earnings - don't use interest income, keep it invested. Starting 10 years earlier can nearly double your final amount.
Compound Interest Tips
  • Start early - even small amounts compound significantly over time
  • Invest regularly to add to principal and accelerate growth
  • Choose monthly or daily compounding over annual for better returns
  • Avoid withdrawals - let interest compound undisturbed
  • Use Rule of 72 to quickly estimate when money will double
  • Compare interest rates across banks and FDs before investing
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Important Disclaimer
This compound interest calculator is for educational and informational purposes only. Results are estimates based on the values you provide. Actual returns may vary based on market conditions, taxes, inflation, and other factors. Past performance does not guarantee future results. Always consult with a qualified financial advisor before making investment decisions.