📈 Compound Interest Calculator
Calculate compound interest with any compounding frequency. See your year-by-year growth and total returns. Free, instant, no signup.
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What is Compound Interest?
Compound interest is interest calculated on both the original principal and the interest that has already been earned in previous periods. Unlike simple interest (which is always calculated on the original principal), compound interest grows exponentially because you earn "interest on your interest". The formula is: A = P × (1 + R/n)^(n×T), where P is the principal, R is the annual rate in decimal, n is the compounding frequency per year, and T is the time in years.
Compound interest is the engine behind all long-term wealth creation. Fixed deposits, PPF, mutual funds, EPF and National Savings Certificates all use compound interest. The key insight is that the interest you earn today starts earning its own interest tomorrow — and the effect snowballs dramatically over 10, 20 or 30 years.
How Compounding Frequency Affects Returns
The more frequently interest compounds, the higher your effective annual return. This is because each compounding event adds interest to the principal, making the next period's base slightly larger. The difference is small in the short term but meaningful over longer horizons.
For ₹1,00,000 at 10% per annum for 10 years:
- Annually (n=1): Total = ₹2,59,374 — CI = ₹1,59,374
- Quarterly (n=4): Total = ₹2,68,506 — CI = ₹1,68,506
- Monthly (n=12): Total = ₹2,70,704 — CI = ₹1,70,704
- Daily (n=365): Total = ₹2,71,791 — CI = ₹1,71,791
The difference between annual and daily compounding over 10 years is ₹12,417 on a ₹1 lakh investment — about 8% more. Over 30 years, that gap widens considerably.
The Rule of 72
The Rule of 72 is a shortcut for estimating how long it takes your money to double at a given compound interest rate: Years to double = 72 ÷ Annual Rate. At 8% annual return, your money doubles in approximately 9 years. At 12%, it doubles in 6 years. At the PPF rate of 7.1%, it doubles in about 10 years. This rule works best for rates between 6% and 20% and annual compounding.
Where Compound Interest Is Used in India
- PPF (Public Provident Fund): 7.1% compounded annually — 15-year lock-in
- Bank Fixed Deposits: typically compounded quarterly
- EPF (Employee Provident Fund): 8.25% compounded annually
- Sukanya Samriddhi Yojana: 8.2% compounded annually
- NSC (National Savings Certificate): 7.7% compounded annually
- Mutual Funds / SIPs: growth compounds through reinvestment of returns
- Credit card debt: typically 36–42% per annum compounded monthly — avoid!
Frequently Asked Questions
What is the 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, R is the annual rate as a decimal (divide % by 100), n is the compounding frequency per year (1 annual, 4 quarterly, 12 monthly, 365 daily), and T is the time in years. CI = A − P. For example, ₹1,00,000 at 10% monthly compounding for 5 years: A = 1,00,000 × (1 + 0.10/12)^(12×5) = ₹1,64,532.
How does compounding frequency affect returns?
More frequent compounding generates slightly higher returns because each compounding event adds interest to the principal, making the next period's base slightly larger. For ₹1,00,000 at 10% for 5 years: annually = ₹1,61,051; quarterly = ₹1,63,862; monthly = ₹1,64,532; daily = ₹1,64,866. The difference between annual and daily compounding is about ₹3,815. The gap grows significantly over longer time horizons.
What is the Rule of 72?
The Rule of 72 estimates how long it takes to double your money with compound interest: Years to double = 72 ÷ Annual Rate. At 8%: 9 years. At 12%: 6 years. At 6%: 12 years. At PPF's 7.1%: about 10.1 years. This mental shortcut is accurate within 1–2% for rates between 6% and 20% and is widely used by financial planners to explain the power of compounding to investors.
Which Indian investments use compound interest?
Most long-term Indian savings instruments use compound interest: PPF compounds annually at 7.1%; bank FDs typically compound quarterly; EPF compounds annually at 8.25%; Sukanya Samriddhi Yojana at 8.2%; NSC at 7.7% annually. Mutual funds and stocks also benefit from compounding through reinvested dividends and capital appreciation. Credit card debt at 36–42% per annum also compounds (monthly), making it extremely costly if not paid in full each month.
How is compound interest different from simple interest?
Simple interest is always calculated on the original principal — you earn the same fixed amount each year. Compound interest is calculated on principal plus accumulated interest — returns grow each year. For ₹1,00,000 at 10% for 10 years: simple interest earns ₹1,00,000 (total ₹2,00,000), while compound interest (annual) earns ₹1,59,374 (total ₹2,59,374) — ₹59,374 more. Over 30 years the gap is enormous: SI gives ₹4,00,000 total while CI gives approximately ₹17,45,000.