Compound Interest Calculator
See the power of compounding — calculate CI with yearly, quarterly, or monthly compounding
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= ₹1,00,000 × (1 + 8%/1)^(1×5) = ₹1,46,933
📖 Complete Guide to Compound Interest
Compound interest is the foundation of wealth creation. Unlike simple interest that only earns on your original principal, compound interest earns interest on both principal AND accumulated interest. This creates an exponential growth curve — the longer you stay invested, the faster your money grows.
📊 Compound vs Simple Interest — Growth Comparison
| ₹1 Lakh at 10% | Simple Interest | Compound Interest (Yearly) | CI Advantage |
|---|---|---|---|
| 5 Years | ₹1.50L | ₹1.61L | +₹11,051 |
| 10 Years | ₹2.00L | ₹2.59L | +₹59,374 |
| 20 Years | ₹3.00L | ₹6.73L | +₹3.73L |
| 30 Years | ₹4.00L | ₹17.45L | +₹13.45L |
⏱️ Compounding Frequency Impact
| ₹1 Lakh at 12% for 10 years | Final Amount | Interest Earned |
|---|---|---|
| Annually | ₹3,10,585 | ₹2,10,585 |
| Quarterly | ₹3,26,204 | ₹2,26,204 |
| Monthly | ₹3,30,039 | ₹2,30,039 |
| Daily | ₹3,31,946 | ₹2,31,946 |
🎯 Rule of 72 — Quick Doubling Estimate
Years to double = 72 ÷ Interest Rate
- At 6% (FD rate): doubles in 12 years
- At 8% (debt fund): doubles in 9 years
- At 12% (equity fund): doubles in 6 years
- At 15% (small cap): doubles in 4.8 years
💡 Maximize Compound Interest
- Start early: ₹5,000/month from age 25 beats ₹15,000/month from age 35 at retirement
- Choose higher frequency: Monthly compounding earns 2-3% more than yearly over long periods
- Reinvest returns: Choose Growth/Cumulative options, not Dividend/Payout
- Use SIP in mutual funds: Each installment compounds independently, maximizing growth
- Compare with Simple Interest to see the dramatic difference compounding makes
❓ Frequently Asked Questions
Q: What is compound interest?
A: Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which only earns on principal), compound interest creates a snowball effect — your interest earns interest. This is why Einstein reportedly called it 'the 8th wonder of the world'.
Q: What is the compound interest formula?
A: A = P × (1 + r/n)^(n×t), where A = final amount, P = principal, r = annual interest rate (decimal), n = compounding frequency per year (1=annually, 4=quarterly, 12=monthly, 365=daily), t = time in years. Interest earned = A - P.
Q: What is the difference between simple and compound interest?
A: Simple Interest (SI) = P × R × T / 100 — interest only on principal. Compound Interest earns interest on both principal and accumulated interest. For ₹1 Lakh at 10% for 10 years: SI = ₹1 Lakh, CI = ₹1.59 Lakh. The longer the duration, the bigger the difference.
Q: What is the Rule of 72?
A: The Rule of 72 is a shortcut to estimate how long it takes to double your money: Years to double = 72 ÷ interest rate. At 12% returns, money doubles in 72÷12 = 6 years. At 8%, it doubles in 9 years. At 15%, it doubles in 4.8 years.
Q: Monthly vs quarterly vs yearly compounding — which is better?
A: More frequent compounding = more returns. For ₹1 Lakh at 10% for 5 years: Yearly = ₹1,61,051, Quarterly = ₹1,63,862, Monthly = ₹1,64,531, Daily = ₹1,64,866. Monthly compounding gives ~2.2% more than yearly over 5 years.
Q: How does compound interest work in FD?
A: Banks compound FD interest quarterly. ₹5 Lakh at 7% for 5 years: Simple interest = ₹1.75L, with quarterly compounding = ₹2.07L — that's ₹32,000 more! This is why cumulative FDs (interest reinvested) earn more than non-cumulative FDs.
Q: How does compound interest work in SIP?
A: In SIP, each monthly installment earns compound returns. A ₹5,000/month SIP at 12% for 20 years: Total invested = ₹12L, but maturity = ₹49.9L. The ₹37.9L gain is the power of compounding — your returns earning returns over time.
Q: What is continuous compounding?
A: Continuous compounding compounds interest infinitely often (every instant). Formula: A = P × e^(r×t). In practice, daily compounding gives nearly identical results. Some international savings accounts and bonds use continuous compounding.
Q: How to benefit from compound interest?
A: 1) Start early — even small amounts grow enormously over decades. 2) Choose investments with higher compounding frequency. 3) Reinvest returns (choose Growth/Cumulative options). 4) Stay invested long-term — the real magic happens after 10+ years. 5) Increase investment amount annually.
Q: Where does compound interest apply in real life?
A: Compound interest works in: Bank FDs (quarterly), RDs (quarterly), Mutual Funds (daily NAV), PPF (yearly), Savings accounts (daily/quarterly), Loans (monthly EMI). For investments, it grows your wealth. For loans, it increases your total repayment.
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