Compound Interest Calculator
Calculate compound interest and see how your money grows over time with the power of compounding.
What is Compound Interest?
Compound Interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which is only on the principal), compound interest earns "interest on interest," leading to exponential growth.
Albert Einstein reportedly called compound interest the "eighth wonder of the world" — "He who understands it, earns it; he who doesn't, pays it." The longer your money compounds, the more dramatic the growth becomes.
Compounding frequency matters — the more often interest is compounded (daily > monthly > quarterly > annually), the higher the effective return.
Compound Interest Formula
CI = A – P
Where:
- A = Final Amount (Principal + Interest)
- P = Principal (Initial Investment)
- r = Annual Interest Rate (in decimal, e.g., 10% = 0.10)
- n = Compounding Frequency per Year (1=Annual, 4=Quarterly, 12=Monthly, 365=Daily)
- t = Time Period in Years
- CI = Compound Interest Earned
💡 Note: The more frequently interest is compounded, the higher the effective return. Daily compounding yields slightly more than annual compounding at the same nominal rate.
Example Calculation
Scenario
You invest ₹1,00,000 at 10% per annum for 5 years with quarterly compounding.
Step-by-Step Solution
P = 1,00,000; r = 0.10; n = 4; t = 5
A = 1,00,000 × (1 + 0.10/4)^(4×5) = 1,00,000 × (1.025)^20
A = 1,00,000 × 1.6386 = ₹1,63,862
CI = 1,63,862 – 1,00,000 = ₹63,862
Compounding earned you ₹13,862 extra compared to simple interest!
Frequently Asked Questions
Simple Interest is calculated only on the original principal: SI = P × r × t. Compound Interest is calculated on principal + accumulated interest. Over time, CI grows much faster than SI due to the compounding effect.
For investors/savers: more frequent is better (daily > monthly > quarterly). For borrowers: less frequent compounding means lower interest payable. The difference between quarterly and daily compounding is usually small for typical rates.
The Rule of 72 is a quick estimation: divide 72 by the annual interest rate to find how many years it takes to double your money. Example: at 8% interest, money doubles in approximately 72/8 = 9 years.
Yes! Compound interest works both ways. On credit cards and some loans, unpaid interest gets added to the principal, and you pay interest on that too. This is why credit card debt can snowball quickly — always pay more than the minimum.
Start early — even small amounts grow significantly over decades. Reinvest returns — don't withdraw interest. Choose higher frequency — monthly/quarterly compounding over annual. Stay consistent — regular additions accelerate growth.
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