Compound Interest Calculator
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What is Compound Interest?
Compound interest is calculated on both the initial principal and the accumulated interest from all previous periods. Unlike simple interest, which is earned just on the initial sum, compound interest grows on its own, resulting in a snowball effect over time.
Albert Einstein is usually credited with calling compound interest the eighth wonder of the world. Whether or not he stated that, math backs it up—money that earns interest on its interest grows exponentially, but simple-interest money grows only linearly. The difference is the primary reason why long-term investing in FDs, PPF, EPF, and mutual funds generates substantial returns.
Simple Interest vs Compound Interest
| Feature | Simple Interest (SI) | Simple Interest (CI) |
|---|---|---|
| Present age | SI = P × R × T ÷ 100 | A = P(1 + r/n)^(nt); CI = A − P |
| Calculated on | Principal only | Principal + accumulated interest |
| Growth pattern | Linear | Exponential |
| Rs 1 lakh at 10% for 5 yrs | Interest = Rs 50K and Total = Rs 1,50,000 | Interest = Rs 61,051 and Total = Rs 1,61,051 |
| Best suited for | Short-term loans | FDs, PPF, mutual funds, long-term savings |
How to Use the Compound Interest Calculator
- Enter the principal amount.
- Enter your annual interest rate as a percentage.
- Choose a compounding frequency. It could be daily, monthly, quarterly, half-yearly, or annual.
- Set the time in years.
- Enter a regular contribution amount and frequency: monthly, quarterly or yearly.
- Click "Calculate" to see the maturity amount, total interest, pie chart and year-by-year growth table.
Compound Interest Formula
The standard formula is A = P(1 + r/n)^(nt), where A is the maturity amount, P is the principal, r is the annual interest rate, n is the compounding frequency per year, and t is the time in years. Compound interest (CI) is calculated as A-P.
For daily compounding, n = 365. For monthly, n = 12. For quarterly, n = 4. For half-yearly, n = 2. Annually, n = 1.
Monthly CI formula: A = P(1 + r/12)^(12t)
Quarterly CI formula is: A = P(1 + r/4)^(4t)
Compound Interest Calculation Examples
Example 1: Lump Sum and Annual Compounding
For example: Rs 1 lakh invested at 8% per year and compounded annually for ten years.
A = 1,00,000 x (1 + 0.08/1)^(1×10) = 1,00,000 x (1.08)^10 = Rs 2,15,892CI = Rs 2,15,892 - Rs 1,00,000 = Rs 1,15,892.
Example 2: Fixed Deposit with Quarterly Compounding
Invest Rs 5 lakh at 7.5% per year for 3 years.
A = 5,00,000 x (1 + 0.075/4)^(4×3) = 5,00,000 x (1.01875)^12 = Rs 6,24,867CI = Rs 1,24,867.
Example 3: SIP-style Monthly Contribution
A monthly contribution of Rs 10,000 at 12% per year (monthly compounding) for 20 years.
Future value = PMT × [((1 + r/n)^(nt) − 1) / (r/n)] = 10,000 × [((1 + 0.01)^240 − 1) / 0.01] = Rs 98,93,692 (nearly Rs 99 lakh on only Rs 24 lakh invested).
How Compounding Frequency Affects Returns
| Frequency | n (per year) | Maturity Amount | Interest Earned |
|---|---|---|---|
| Daily | 365 | Rs 2,22,535 | Rs 1,22,535 |
| Monthly | 12 | Rs 2,21,964 | Rs 1,21,964 |
| Quarterly | 4 | Rs 2,20,804 | Rs 1,20,804 |
| Half-Yearly | 2 | Rs 2,19,112 | Rs 1,19,112 |
| Annually | 1 | Rs 2,15,892 | Rs 1,15,892 |
Compound Interest for Indian Investments
| Instrument | Compounding | Typical Rate | Lock-in | Tax Treatment |
|---|---|---|---|---|
| FD (Bank) | Quarterly | 6.5–8.5% | 7 days–10 yrs | Interest taxable as income |
| PPF | Annually | 7.1% | 15 years | EEE—fully tax-free |
| EPF | Annually | 8.25% | Till retirement | EEE—conditions apply |
| NPS | Market-linked | 8–12% (equity) | Till age 60 | Partial EEE |
| SIP or Mutual Fund | Daily (NAV) | 10–15% (equity) | None | LTCG/STCG applicable |
| RD | Quarterly | 6.5–7.5% | 6 months–10 yrs | Interest taxable |
| Sukanya Samriddhi Yojana | Annually | 8.2% | 21 years | Fully tax-free |
| Savings A/C | Daily/Quarterly | 2.5–7% | None | Up to Rs 10k exempt under Sec 80TTA |
Rule of 72: How Long to Double Your Money
| Annual Rate | Years to Double (Rule of 72) | Actual Years (CI formula) | Difference |
|---|---|---|---|
| 6% | 12 yrs | 11.9 yrs | 0.1 years |
| 7% | 10.3 yrs | 10.2 yrs | 0.1 years |
| 8% | 9 yrs | 9 yrs | 0.0 years |
| 10% | 7.2 yrs | 7.3 yrs | 0.1 years |
| 12% | 6 yrs | 6.1 yrs | 0.1 years |
| 15% | 4.8 yrs | 5 yrs | 0.2 years |
Effect of Inflation on Compound Interest Returns
Most investors track nominal returns, but real returns strip out inflation and reveal actual wealth growth. Say for example, on a 7% FD with 5% inflation, the real return is 1.90%, worked out as (1.07 ÷ 1.05) − 1. This is why equity-based compounding in mutual funds, NPS equity tier outperforms FDs and PPF in the long run.
Moreover, equity has historically compounded at 10-14% in India, considerably ahead of the 5-6% annual inflation. FDs and savings accounts usually struggle to keep up with inflation in terms of post-tax actual returns.
Power of Starting Early
| Starting | Person A | Person B | Difference |
|---|---|---|---|
| Start age | 25 | 35 | 10 years earlier |
| Monthly investment | Rs 5,000 | Rs 5,000 | Same |
| Annual rate | 12% | 12% | Same |
| Retirement age | 60 | 60 | Same |
| Total invested | Rs 21,00,000 | Rs 15,00,000 | Rs 6,00,000 more |
| Corpus at 60 | Rs 1,76,49,569 | Rs 52,46,060 | Rs 1,24,03,509 more |
