Compound Interest Calculator
Compute compound interest on a principal at a chosen compounding frequency.
- Principal
- Value
- Principal
- ₹1.00L
- Interest earned
- ₹1.16L
Assumes a constant 8% annual rate, compounded annual.
Independent · No commissions · No fund-house data — how the numbers are computed
How it works
Compound interest is interest earned on interest: each period's interest joins the principal, and the next period's interest is computed on the larger base. It is the engine under nearly every financial product — fixed deposits, bonds, PPF, mutual-fund growth and loan balances all compound — and over long horizons it, not the contribution, does most of the work.
This calculator grows a principal at a constant annual rate (defaulting to 8%, fully editable) over a tenure of up to 40 years, at a compounding frequency you choose — annual by default, switchable to half-yearly, quarterly or monthly. More frequent compounding at the same nominal rate yields slightly more, because interest starts earning interest sooner.
The frequency effect is real but modest: ₹1 lakh at 8% for 10 years grows to about ₹2.16 lakh compounded annually and about ₹2.22 lakh compounded monthly. Time and rate dominate — doubling the tenure or adding two percentage points to the rate changes the outcome far more than any frequency switch.
A = P × (1 + r/n)^(n×t)P is the principal, r the annual rate as a decimal, n the number of compounding periods per year (1 annual, 2 half-yearly, 4 quarterly, 12 monthly), and t the time in years. A is the final amount; compound interest earned is A − P.
Frequently asked questions
How does compounding frequency affect returns?
At the same nominal annual rate, more frequent compounding yields more, because interest starts earning interest sooner. The effect is modest: ₹1 lakh at 8% for 10 years becomes about ₹2,15,900 compounded annually, ₹2,19,100 half-yearly, ₹2,20,800 quarterly and ₹2,22,000 monthly. Frequency fine-tunes the outcome; the rate and the number of years determine it.
What is the difference between nominal rate and effective annual rate?
The nominal rate is the quoted annual figure; the effective annual rate (EAR) is what you actually earn after intra-year compounding: EAR = (1 + r/n)^n − 1. A nominal 8% compounded quarterly is an effective 8.24% a year; compounded monthly, 8.30%. Comparing products quoted at different frequencies is only meaningful on their effective rates.
What is the Rule of 72?
A mental shortcut for doubling time under compound growth: divide 72 by the annual growth rate in percent to estimate the years needed to double. At 8% a year, money doubles in roughly 72 ÷ 8 = 9 years; at 12%, roughly 6 years. It is an approximation — most accurate for rates around 6–10% — but close enough for quick comparisons without a calculator.
Why is compound interest so powerful over long periods?
Because growth becomes exponential, not linear: each year's interest is computed on an ever-larger base. ₹1 lakh at 8% compounded annually earns about ₹8,000 in its first year but over ₹33,000 in its 20th, and the total reaches roughly ₹4.66 lakh in 20 years versus ₹2.6 lakh at simple interest. The later years contribute disproportionately — which is why starting early matters more than starting big.
Do mutual funds pay compound interest?
Not literally — mutual funds have no interest rate; their NAV moves with the market, up and down. But growth-option funds compound in effect, because gains stay invested and future growth applies to the enlarged value. That is why multi-year fund returns are quoted as CAGR — the constant compounded annual rate that would produce the same end value — rather than as a simple average.
Go further
The no-compounding baseline, to see what interest-on-interest adds.
Run the formula backwards — find the compounded rate between two values.
The long-horizon story this formula tells, with worked examples.
The same one-time-investment math applied to mutual-fund returns.
This formula at work in India's most common deposit product.