Compound Interest Calculator
Calculate how any lump sum investment grows with compound interest. Enter the principal, annual rate, compounding frequency, and time period to find the final amount, interest earned, and effective annual rate.
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How Compound Interest Calculator Works
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest — which is calculated only on the principal — compound interest causes your money to grow at an accelerating rate over time. This self-reinforcing growth is what Einstein reportedly called “the eighth wonder of the world.”
Every bank FD, recurring deposit, provident fund, and most mutual fund returns use some form of compounding to calculate final returns. Understanding compound interest is the foundation of all personal finance and investment planning.
Simple Interest vs Compound Interest
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Interest calculated on | Principal only | Principal + accumulated interest |
| Growth pattern | Linear | Exponential |
| Formula | I = P × r × t | A = P(1 + r/n)nt |
| Used in | Short-term loans, some bonds | FDs, savings, investments |
| ₹1,00,000 at 10% for 10 years | ₹2,00,000 | ₹2,59,374 |
The Compound Interest Formula
The standard formula for the final amount under compound interest is:
A = P × (1 + r/n)n × t
Where:
- A — Final amount (principal + interest)
- P — Principal (initial investment)
- r — Annual interest rate as a decimal (rate ÷ 100)
- n — Number of compounding periods per year (1, 2, 4, 12, or 365)
- t — Time in years
Interest earned = A − P
Worked Example
₹1,00,000 at 12% p.a. compounded monthly for 5 years:
- r = 12 ÷ 100 = 0.12, n = 12, t = 5
- A = 1,00,000 × (1 + 0.12/12)12×5 = 1,00,000 × (1.01)60
- A = 1,00,000 × 1.8167 = ₹1,81,670
- Interest earned = ₹1,81,670 − ₹1,00,000 = ₹81,670
Effect of Compounding Frequency
The more frequently interest is compounded, the higher the final amount. The table below shows ₹1,00,000 at 10% p.a. for 10 years under each compounding frequency:
| Frequency | Periods/Year | Final Amount | Interest Earned |
|---|---|---|---|
| Annually | 1 | ₹2,59,374 | ₹1,59,374 |
| Half-Yearly | 2 | ₹2,65,330 | ₹1,65,330 |
| Quarterly | 4 | ₹2,68,506 | ₹1,68,506 |
| Monthly | 12 | ₹2,70,704 | ₹1,70,704 |
| Daily | 365 | ₹2,71,791 | ₹1,71,791 |
The difference between annual and daily compounding on ₹1 lakh over 10 years is only about ₹12,000 — significant, but not transformative at typical Indian retail investment amounts. The rate and time matter far more than frequency.
Effective Annual Rate (EAR)
The Effective Annual Rate (EAR) converts a nominal rate compounded at any frequency into its annual equivalent, making different products directly comparable:
EAR = (1 + r/n)n − 1
Example: 12% compounded monthly → EAR = (1.01)12 − 1 = 12.68%. A 12.5% FD compounded annually is actually better than a 12% FD compounded monthly (12.5% > 12.68% is false — 12.68% is better). Always compare using EAR.
The Power of Time — Rule of 72
The Rule of 72 is a quick mental shortcut: divide 72 by the annual interest rate to estimate the number of years it takes to double your money.
- At 6%: 72 ÷ 6 = 12 years to double
- At 9%: 72 ÷ 9 = 8 years to double
- At 12%: 72 ÷ 12 = 6 years to double
- At 18%: 72 ÷ 18 = 4 years to double
Starting 10 years earlier can be more powerful than doubling your investment amount — because time gives every rupee more compounding cycles.
Accuracy & Sources
Last reviewed: July 2026. Formula source: Standard compound interest formula — A = P(1 + r/n)^(nt). All calculations run in your browser. No data is sent to any server.
Frequently Asked Questions
Simple interest is calculated only on the principal: I = P × r × t. Compound interest is calculated on both the principal and the interest already earned, so each period's interest becomes part of the base for the next period. On ₹1,00,000 at 10% for 10 years: simple interest gives ₹2,00,000; compound interest (annual compounding) gives ₹2,59,374 — nearly ₹60,000 more from the same principal, rate, and time.
A = P × (1 + r/n)^(n × t), where A is the final amount, P is the principal, r is the annual interest rate as a decimal (rate ÷ 100), n is the number of compounding periods per year (1 for annual, 12 for monthly, 365 for daily), and t is the time in years. Interest earned = A − P. Enter your values above for an instant result.
The Effective Annual Rate (EAR) converts a nominal interest rate — compounded at any frequency — into its true annual equivalent. Formula: EAR = (1 + r/n)^n − 1. For example, 12% compounded monthly gives EAR = (1.01)^12 − 1 = 12.68%. EAR lets you compare FDs with different compounding frequencies on equal terms: a 12.5% FD compounded annually is better than a 12% FD compounded monthly (12.5% vs 12.68% — the monthly-compounded one actually wins at 12.68%).
More frequent compounding produces slightly higher returns because interest is added to the principal faster. On ₹1,00,000 at 10% for 10 years: annually = ₹2,59,374; quarterly = ₹2,68,506; monthly = ₹2,70,704; daily = ₹2,71,791. The difference between annual and daily compounding is about ₹12,400 — meaningful but not dramatic. Rate and time have a much larger impact than compounding frequency.
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 6%, it takes about 12 years (72 ÷ 6). At 9%, about 8 years. At 12%, about 6 years. At 18%, about 4 years. The rule works because ln(2) ÷ ln(1+r) ≈ 72/r for rates in the 6–20% range. It is a useful mental shortcut for comparing investment options.
Most Indian banks compound FD interest quarterly. Some also offer monthly interest payout options (where interest is paid monthly rather than reinvested). For a regular (non-payout) FD, interest compounds quarterly, so use the Quarterly setting in this calculator for FD projections. Savings accounts in India typically compound daily or monthly. Always check your bank's terms — the product brochure will specify compounding frequency.
A compound interest calculator models a one-time lump sum investment (like an FD or bond) that grows at a fixed rate. A SIP calculator models recurring monthly investments in a mutual fund with a variable expected return. Both use compounding, but compound interest applies to a single principal, while SIP compounds each individual monthly installment separately. Use this calculator for fixed deposits and lump sum investments, and the SIP Calculator for systematic monthly mutual fund investments.