Home / Finance / Compound Interest Calculator

Compound Interest Calculator

Calculate compound interest and see the power of compounding on your investments

Future Value
₹14,859
Principal Amount ₹10,000
Compound Interest ₹4,859

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 makes your money grow exponentially over time, unlike simple interest which is calculated only on the principal amount.

Albert Einstein reportedly called compound interest "the eighth wonder of the world," saying "He who understands it, earns it; he who doesn't, pays it." This powerful concept is the foundation of wealth building through long-term investing.

Compound Interest Formula

The compound interest formula calculates the future value of an investment:

A = P × (1 + r/n)nt
CI = A − P

Where:

Compounding Frequency Explained

How often interest is compounded significantly affects your returns:

Annual Compounding (n=1)

Interest is added once per year. Simple but yields the lowest returns among compounding frequencies.

Quarterly Compounding (n=4)

Interest is added every 3 months. Common for fixed deposits and many savings accounts in India.

Monthly Compounding (n=12)

Interest is added every month. Popular for recurring deposits and some mutual funds.

Daily Compounding (n=365)

Interest is added every day. Offers the highest returns and is used by some high-yield savings accounts.

Compound Interest vs Simple Interest

The difference becomes dramatic over time. For ₹1,00,000 at 10% for 20 years:

Compound interest earns 5.7x more than simple interest over 20 years!

The Power of Starting Early

Time is the most powerful factor in compound interest. Consider two investors:

At 12% annual return, Investor A has ₹1.76 crore at 60, while Investor B has only ₹1.50 crore despite investing 2.5x more! Starting early is crucial.

Applications of Compound Interest

Investments

Mutual funds, stocks, and bonds grow through compound returns. Reinvesting dividends accelerates growth.

Savings Accounts

Bank savings accounts and fixed deposits use compound interest, though rates are typically lower than investment returns.

Retirement Planning

Long-term retirement accounts benefit massively from decades of compounding.

Debt (Negative Impact)

Credit card debt and unpaid loans compound against you, making debt grow exponentially if not paid off.

Maximizing Compound Interest Returns

Related Calculators

📚 Recommended Financial Resources

Enhance your financial knowledge with these top-rated finance books and resources:

Browse Finance Books on Amazon →

Disclosure: As an Amazon Associate, we earn from qualifying purchases made through this link at no additional cost to you.

Frequently Asked Questions

What is compound interest?
Compound interest is interest calculated on both the principal amount and accumulated interest from previous periods. It's 'interest on interest' that accelerates wealth growth over time.
How is compound interest calculated?
Compound Interest = P(1+r/n)^(nt) - P, where P is principal, r is annual rate, n is compounding frequency per year, and t is time in years.
What is the difference between simple and compound interest?
Simple interest is calculated only on principal. Compound interest is calculated on principal plus accumulated interest, resulting in exponentially higher returns over time.
How often should interest compound for best returns?
More frequent compounding yields higher returns. Daily compounding gives better returns than monthly, which beats quarterly or annual compounding.
Can compound interest work against me?
Yes, compound interest on debt (like credit cards) works against you, increasing what you owe exponentially. That's why paying off high-interest debt quickly is crucial.