Compound Interest Calculator 💰

What is Compound Interest?

Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods — often called "interest on interest." It's one of the most powerful concepts in finance and is the reason why starting investments early matters so much. Albert Einstein reportedly called it the "eighth wonder of the world."

Compound Interest Formula

A = P × (1 + r/n)^(n×t)

Where A = Final amount, P = Principal (initial investment), r = Annual interest rate (decimal), n = Number of times interest is compounded per year, and t = Time in years. CI = A - P. The more frequently interest is compounded (daily vs. annually), the faster your money grows.

Worked Example

  1. Principal (P) = ₹1,00,000
  2. Annual Rate (r) = 8% = 0.08
  3. Compounding = Quarterly (n = 4)
  4. Time (t) = 5 years
  5. A = 1,00,000 × (1 + 0.08/4)^(4×5)
  6. A = 1,00,000 × (1.02)^20
  7. A = ₹1,48,595
  8. Compound Interest = ₹48,595
  9. Compare to Simple Interest: ₹40,000 (₹8,595 less!)

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 previously earned interest. Over time, compound interest grows exponentially while simple interest grows linearly. For example, ₹1 lakh at 10% for 10 years yields ₹1 lakh in simple interest vs ₹1.59 lakh in compound interest.
More frequent compounding leads to higher returns. ₹1 lakh at 12% for 1 year: Annual compounding = ₹1,12,000. Quarterly = ₹1,12,551. Monthly = ₹1,12,683. Daily = ₹1,12,747. The difference becomes more significant over longer periods.
The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by the annual interest rate. At 8% interest, your money doubles in approximately 72/8 = 9 years. At 12%, it doubles in about 6 years.
Compound interest applies to savings accounts, fixed deposits, PPF, mutual funds, and most investment vehicles. It also applies to credit card debt and loans, which is why outstanding balances grow quickly if not paid off.

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