Compound Interest Calculator
See how your money grows with compound interest. Choose compounding frequency and get a year-by-year breakdown of principal and accumulated interest.
Year-by-Year Growth
| Year | Value | Interest |
|---|---|---|
| 1 | ₹1,10,471 | ₹10,471 |
| 2 | ₹1,22,039 | ₹22,039 |
| 3 | ₹1,34,818 | ₹34,818 |
| 4 | ₹1,48,935 | ₹48,935 |
| 5 | ₹1,64,531 | ₹64,531 |
Breakdown
What Is Compound Interest?
Compound interest is interest calculated on both the original principal and the accumulated interest from previous periods. Often called “interest on interest,” it causes wealth to grow exponentially rather than linearly — which is why Albert Einstein reportedly called it the eighth wonder of the world.
The difference between simple and compound interest is small over short periods but becomes dramatic over decades. ₹1 lakh at 12% simple interest for 20 years grows to ₹3.4 lakhs. At 12% compound interest (monthly), it grows to ₹9.9 lakhs — nearly 3x more.
The Compound Interest Formula
A = Final amount | P = Principal | r = Annual interest rate (decimal) | n = Compounding periods per year | t = Years
The key insight: more frequent compounding (larger n) produces higher returns for the same interest rate. Monthly compounding (n=12) beats quarterly (n=4) beats annual (n=1). This is why mutual funds, which compound returns daily through NAV changes, tend to outperform annual compounding FDs at the same nominal rate.
Rule of 72 — How Fast Does Your Money Double?
Divide 72 by the annual interest rate to estimate the doubling time:
| Rate | Years to Double |
|---|---|
| 7% (FD) | 10.3 years |
| 10% (Mutual Fund) | 7.2 years |
| 12% (Equity Fund) | 6 years |
| 15% (Small Cap) | 4.8 years |
Frequently Asked Questions
What is the difference between simple interest and compound interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus accumulated interest — so your interest earns interest. Over time, this creates exponentially larger returns compared to simple interest.
How often should interest compound for maximum returns?
More frequent compounding produces higher returns. Monthly compounding produces more than quarterly, which produces more than annually. The difference is significant over long periods — a 12% rate compounded monthly produces more than 12% compounded annually.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long money takes to double. Divide 72 by the annual interest rate. At 12%, money doubles in 72 ÷ 12 = 6 years. At 8%, it takes 9 years.
What investments use compound interest in India?
Mutual funds (especially growth option), Public Provident Fund (PPF), National Savings Certificate (NSC), recurring deposits, fixed deposits with reinvestment, and Employee Provident Fund (EPF) all use compounding. Mutual funds are unique in that compounding works on market returns, not a fixed rate.
Is compound interest calculated on FD in India?
Yes. Most banks offer compound interest on fixed deposits, typically compounded quarterly. A ₹1 lakh FD at 7% for 5 years with quarterly compounding grows to approximately ₹1.41 lakhs.
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