Compound Interest Calculator

Compound Interest Calculator — Annual, Quarterly & Monthly

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All FrequenciesRule of 72EAR Comparison

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The Power of Compounding — The 8th Wonder

Albert Einstein reportedly called compound interest “the eighth wonder of the world.” A small amount + time + reasonable rate = extraordinary results.

The Compounding Math

FV = P × (1 + r/n)^(n×t) Where: P = Principal, r = annual rate, n = compounding frequency per year, t = time in years.

Compounding Frequency Matters

Frequency	n value	₹1L @ 10% for 10 yr
Annually	1	₹2,59,374
Semi-Annually	2	₹2,65,330
Quarterly	4	₹2,68,506
Monthly	12	₹2,70,704
Daily	365	₹2,71,791
Continuous	∞	₹2,71,828 (= e^1)

Daily vs annual: only ~₹12K difference on ₹1L over 10 years. Higher frequency adds < 1% extra. Don’t chase compounding frequency — chase higher rates and longer tenures.

The Rule of 72 and Variants

Rule	What It Tells	Use Case
Rule of 72	Years to double = 72/rate%	Quick doubling estimate (6-12% range)
Rule of 114	Years to triple = 114/rate%	3x growth estimate
Rule of 144	Years to quadruple = 144/rate%	4x growth estimate
Rule of 70	More accurate for low rates	Slow growth (1-6%)

Worked Examples:

At 8% return → doubles in 9 years, triples in 14.25 years
At 12% return → doubles in 6 years, triples in 9.5 years
At 15% return → doubles in 4.8 years, triples in 7.6 years
At 18% return → doubles in 4 years, triples in 6.3 years

The Magic of Time — Start Early

The most powerful compound interest variable is TIME. Two examples:

Scenario A: Early Starter

Riya invests ₹5,000/month from age 25 to 35 (10 years), then stops. Total invested: ₹6 lakh. Letting it compound at 12% till age 60 (25 more years): Final corpus ₹2.3 crore.

Scenario B: Late Starter

Rohan invests ₹5,000/month from age 35 to 60 (25 years). Total invested: ₹15 lakh. Same 12% rate. Final corpus: ₹95 lakh.

Riya invested ₹9 lakh LESS than Rohan but ends up with ₹1.35 crore MORE. The 10-year head start matters more than the 15-year additional contribution. Start as early as possible — even small amounts.

Compound Interest Across Indian Asset Classes

Asset	Avg Annual Return	₹1L → 10 yr	₹1L → 20 yr
Savings Account	3.5%	₹1.41L	₹1.99L
Bank FD	7%	₹1.97L	₹3.87L
PPF	7.1%	₹1.99L	₹3.95L
EPF	8.25%	₹2.21L	₹4.91L
Gold	9%	₹2.37L	₹5.60L
NIFTY 50 (Index Fund)	11%	₹2.84L	₹8.06L
Mid-Cap Mutual Fund	14%	₹3.71L	₹13.74L
Small-Cap Mutual Fund	16%	₹4.41L	₹19.46L

The difference between 7% (FD) and 12% (equity) over 20 years on ₹1 lakh: ₹3.87L vs ₹9.65L. Equity compounding produces ~2.5x more wealth.

Simple vs Compound Interest

Aspect	Simple Interest	Compound Interest
Formula	SI = P × r × t	CI = P × (1+r/n)^(nt) − P
Interest on Interest?	NO	YES
Where Used	Old auto loans, flat-rate FDs, some personal loans	Bank FDs, PPF, EPF, mutual funds, home loans
₹1L @ 10%, 5 yr	₹1.50L (₹50K interest)	₹1.61L (₹61K interest)
₹1L @ 10%, 20 yr	₹3.00L	₹6.73L

Compound interest grows exponentially; simple interest grows linearly. Over long horizons, compound interest leaves simple interest far behind.

Worked Examples

Example 1: SBI 5-Year FD ₹5L @ 7% Quarterly Compounding

n = 4, r = 0.07, t = 5. FV = 5,00,000 × (1 + 0.07/4)^(4×5) = 5,00,000 × (1.0175)^20 = ₹7,07,053. Interest earned ₹2,07,053. Post-tax (30%): ₹6.45L.

Example 2: ₹1L PPF Annual Deposit, 15 Years @ 7.1%

Annual compounding. FV of annuity formula. Total maturity ≈ ₹27.12L. Total invested ₹15L. Tax-free interest ₹12.12L.

Example 3: EPF Corpus Building

₹15,000 basic salary, 12% employee + 12% employer (~3.67% to EPF, rest to EPS) = ₹2,200/month into EPF account. Over 30 years at 8.25% compounding: ₹40+ lakh corpus.

More FAQs

What’s the difference between APR and APY?

APR (Annual Percentage Rate): Stated annual rate, ignores compounding. APY (Annual Percentage Yield): Effective annual return after compounding. APY ≥ APR. Always compare investments using APY for honest comparison.

Does inflation affect compounding?

Yes — real return = (1 + nominal rate) / (1 + inflation rate) − 1. At 12% nominal return and 6% inflation, real return is ~5.66%. Compounding works on nominal value; purchasing power grows slower. Use real return for long-term goal planning.

Best frequency for compounding?

Higher is marginally better (daily vs annual = <1% difference). Don’t make compounding frequency the deciding factor — focus on RATE and TENURE. A 12% annually-compounded investment outperforms an 8% daily-compounded one easily.

How to maximize compounding power?

Three levers: (1) Start EARLY (time is the biggest factor), (2) Maximize RATE (equity over FD for long horizons), (3) REINVEST returns (don’t withdraw dividends/interest). Compounding requires reinvestment to work.

Why is compound interest called a “snowball”?

Like a snowball rolling downhill picks up more snow as it grows bigger, compound interest grows on previously-earned interest. Each year’s gain becomes larger than the previous year’s. The growth is exponential, not linear.

Are mutual funds compound interest?

Effectively yes. Mutual funds reinvest dividends/interest automatically (growth option). Your unit count stays constant but NAV grows, capturing compounded returns. Same principle, different mechanism.

How does compounding work on home loan EMI?

Bank charges compound interest on outstanding principal. Each EMI pays interest first, then principal. Early EMIs are mostly interest; later EMIs are mostly principal. Prepaying early saves significant interest because you reduce the principal that future compounding works on.

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