Compound Interest Calculator

Compound interest: how money grows on top of itself

Compound interest means interest is added to the balance at regular intervals, and the next interest is then calculated on the larger amount. Savers benefit from this effect in fixed deposits, recurring deposits and long-term investments. Borrowers feel it on credit card balances and unpaid dues. The calculator shows the final amount, the interest earned and the growth year by year.

The formula

A = P × (1 + r ÷ n)^{n × t}, where P is the principal, r the annual rate as a decimal, n the number of compounding periods per year and t the number of years. Compound interest is A − P.

Worked example

₹1,00,000 at 8% compounded quarterly for 5 years: n = 4, so A = 1,00,000 × (1 + 0.02)²⁰ ≈ ₹1,48,595. The interest is about ₹48,595. With yearly compounding the amount would be about ₹1,46,933, so more frequent compounding gives a slightly higher return.

The rule of 72

To estimate how long money takes to double, divide 72 by the annual rate. At 8% it takes about 9 years; at 12% about 6 years. It is an approximation, but it helps in quick planning without a calculator.

Effect of time and rate

• Time matters most: doubling the period more than doubles the growth.
• Starting early beats investing more later. ₹1 lakh invested for 30 years at 8% becomes about ₹10 lakh, while the same amount for 15 years becomes about ₹3.2 lakh.
• A rate difference of 1 to 2 percentage points becomes large over decades.

Compounding works against borrowers too

Credit card dues compound at high annual rates, often above 30%. Paying only the minimum amount leaves most of the balance to keep growing. Clearing high-interest debt first is usually a better return than most investments.

Inflation and taxes

Nominal growth is not the same as real growth. If inflation is 5% and your return is 7%, your purchasing power grows by roughly 2% a year. Interest is also taxable according to current rules, so compare post-tax returns when choosing between products. Use the Income Tax Department website for the latest rules.