Compound Interest Calculator
Calculate how your investments grow over time with the power of compound interest. See your wealth multiply with our interactive calculator and visual charts.
Total Value
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Interest Earned
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Total Contribution
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Wealth Multiplier
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Total Maturity Value
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What is Compound Interest?
Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. It's often called "interest on interest" and is one of the most powerful concepts in finance for building wealth over time.
Simple vs Compound Interest
Simple Interest
- • Interest calculated only on principal
- • Linear growth over time
- • Formula: SI = P × R × T
- • Interest remains constant each year
Compound Interest
- • Interest calculated on principal + accumulated interest
- • Exponential growth over time
- • Formula: A = P(1 + r/n)^(nt)
- • Interest increases each compounding period
Example Comparison
Investment: ₹1,00,000 at 10% annual interest for 10 years
Simple Interest:
Final Amount: ₹2,00,000
Interest Earned: ₹1,00,000
Compound Interest:
Final Amount: ₹2,59,374
Interest Earned: ₹1,59,374
Compound interest earns ₹59,374 more - that's the power of compounding!
Compound Interest Formula
A = P(1 + r/n)^(nt)
Where:
- A = Final amount (maturity value)
- P = Principal amount (initial investment)
- r = Annual interest rate (as decimal)
- n = Number of times interest compounds per year
- t = Time period in years
Compounding Frequencies:
- Annually: n = 1
- Half-yearly: n = 2
- Quarterly: n = 4
- Monthly: n = 12
- Daily: n = 365
Step-by-Step Calculation Example
Calculate compound interest for ₹50,000 at 8% annual rate, compounded quarterly for 5 years:
Step 1: P = ₹50,000, r = 0.08, n = 4, t = 5
Step 2: A = 50,000(1 + 0.08/4)^(4×5)
Step 3: A = 50,000(1 + 0.02)^20
Step 4: A = 50,000(1.02)^20
Step 5: A = 50,000 × 1.4859
Result: A = ₹74,297
Interest Earned: ₹74,297 - ₹50,000 = ₹24,297
Key Insights
- • Time is your friend: The longer you invest, the more powerful compounding becomes
- • Frequency matters: More frequent compounding leads to higher returns
- • Start early: Even small amounts can grow significantly over time
- • Consistency pays: Regular contributions amplify the compounding effect
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest from previous periods. Compound interest grows exponentially over time, making it much more powerful for long-term wealth building.
How does compounding frequency affect my returns?
Higher compounding frequency generally leads to higher returns. Daily compounding will yield more than monthly, which yields more than quarterly or annually. However, the difference becomes less significant at higher frequencies.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long it takes for an investment to double. Divide 72 by the annual interest rate. For example, at 8% interest, your money doubles in approximately 72/8 = 9 years.
Should I make regular contributions to maximize compound interest?
Yes, regular contributions significantly amplify the power of compound interest. Even small, consistent contributions can lead to substantial wealth accumulation over time due to the compounding effect on each contribution.
How accurate is this compound interest calculator?
Our calculator uses the standard compound interest formula A = P(1 + r/n)^(nt) and provides accurate results based on the inputs provided. However, actual investment returns may vary due to market conditions, fees, and other factors.
What investments typically offer compound interest?
Fixed deposits, bonds, mutual funds, stocks (through reinvested dividends), retirement accounts, and savings accounts all can provide compound growth. The key is reinvesting the returns rather than withdrawing them.
Is compound interest taxable?
Yes, compound interest is generally taxable as income in the year it's earned, even if you don't withdraw it. However, tax-advantaged accounts like PPF, ELSS, and retirement accounts may offer tax benefits on compound growth.
How does inflation affect compound interest?
Inflation reduces the purchasing power of your returns. To maintain real wealth growth, your compound interest rate should exceed the inflation rate. Consider this when setting investment return expectations.
Can I lose money with compound interest?
In guaranteed instruments like fixed deposits, you won't lose principal, but inflation might erode purchasing power. In market-linked investments, short-term volatility can cause temporary losses, but compound growth typically rewards long-term investors.
When should I start investing to maximize compound interest?
The earlier, the better! Time is the most powerful factor in compound interest. Starting even 5-10 years earlier can result in significantly higher wealth accumulation due to the exponential nature of compounding.