Arthneeti

Compound Interest Calculator

See how compounding frequency impacts your investment growth

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%
Yr
Total Amount₹1.47 L
Principal
Interest earned
Principal amount₹1.00 L
Interest earned₹46,933
Total amount₹1.47 L

What is Compound Interest?

Compound interest is the interest on a deposit or loan calculated based on both the initial principal and the accumulated interest from previous periods. It is the fundamental force behind wealth creation in long-term investing. In India, instruments like fixed deposits, PPF, mutual funds, and recurring deposits all use compound interest to grow your money. The key difference between simple and compound interest becomes dramatic over long periods. For instance, Rs 1 lakh invested at 12% simple interest for 20 years grows to Rs 3.4 lakh, but with annual compounding, it becomes Rs 9.65 lakh -- nearly 3x more. This is why financial advisors always emphasize starting early: the longer your money compounds, the exponentially larger it grows.

Frequently Asked Questions

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 grows exponentially over time. Albert Einstein reportedly called it the eighth wonder of the world. For example, ₹1 lakh at 10% simple interest becomes ₹2 lakh in 10 years, but with annual compounding, it becomes ₹2.59 lakh — that extra ₹59,000 is the magic of compounding.
How does compounding frequency affect returns?▾
The more frequently interest is compounded, the higher the effective return. For ₹1 lakh at 12% for 5 years: annual compounding gives ₹1,76,234; semi-annual gives ₹1,79,085; quarterly gives ₹1,80,611; and monthly gives ₹1,81,670. The difference increases with higher rates and longer tenures. Fixed deposits in India typically compound quarterly, while savings accounts compound daily or monthly. PPF compounds annually.
What is the compound interest formula?▾
The compound interest formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate (as a decimal), n is the number of times interest is compounded per year, and t is the number of years. The compound interest earned is A - P. For continuous compounding, the formula becomes A = Pe^(rt), though this is rarely used in Indian banking.
Which Indian investments use compound interest?▾
Most Indian investments use compound interest: Fixed deposits compound quarterly, PPF compounds annually, recurring deposits compound quarterly, NSC compounds annually, mutual funds compound daily (NAV-based growth), and savings accounts compound daily or quarterly depending on the bank. Post office schemes like SCSS compound quarterly. Understanding the compounding frequency helps you compare the effective yield across different investment options.
How can I use the Rule of 72 with compound interest?▾
The Rule of 72 is a quick way to estimate how long it takes to double your money with compound interest. Simply divide 72 by the annual interest rate. At 8% (FD rate), your money doubles in 9 years. At 12% (equity mutual fund average), it doubles in 6 years. At 15% (aggressive equity), it doubles in less than 5 years. This rule works well for rates between 6-20% and is a handy mental math tool for Indian investors comparing different investment options.

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