Compound Interest Calculator

What does this Compound Interest Calculator do?

Compound interest is interest calculated not just on your original principal, but also on the interest that's already accumulated — "interest on interest." This calculator shows how a lump sum grows over time at a given annual rate, with a choice of compounding frequency (annually, quarterly, monthly, or daily).

The formula

A = P × (1 + r/n)^(n×t)

Where P is the principal, r is the annual interest rate (as a decimal), n is the number of times interest compounds per year, and t is the number of years. The more frequently interest compounds (higher n), the faster the balance grows, though the effect diminishes as compounding gets more frequent.

Step-by-step example

₹1,00,000 invested at 7% annual interest for 5 years, compounded monthly (n = 12): A = 1,00,000 × (1 + 0.07/12)^(12×5) = 1,00,000 × (1.005833)^60 ≈ ₹1,41,763. That's ₹41,763 in interest earned — more than you'd get from simple interest on the same principal, rate, and term (which would be exactly ₹35,000).

Tips & common mistakes

• The difference between daily and monthly compounding is usually small in percentage terms, but grows more noticeable at higher rates and longer time horizons.
• Compound interest works the same way against you on debt — credit card balances that compound daily can grow faster than many people expect.
• "Rule of 72" is a quick mental shortcut: divide 72 by the annual rate to estimate how many years it takes an investment to double (e.g., at 8%, roughly 9 years).

Why "interest on interest" compounds so powerfully over time

The defining feature of compound interest is that your gains themselves start earning returns. In the early years, this effect is modest — but because it compounds, the growth curve gets steeper every year, not just bigger. This is why financial advice consistently emphasizes starting to save and invest as early as possible: the biggest driver of long-term compound growth isn't usually the interest rate, it's time.

Nominal rate versus effective annual rate

When interest compounds more than once a year, the "effective" annual return you actually earn is slightly higher than the stated nominal annual rate. For example, a 12% nominal rate compounded monthly actually yields about 12.68% over a full year, because each month's interest starts earning its own interest for the remaining months. This is why comparing loan or investment products purely by their stated nominal rate can be misleading if their compounding frequencies differ.

More tips

• When comparing two investment or loan products, always check the compounding frequency, not just the headline interest rate — daily compounding at 6% can end up costing (or earning) more than monthly compounding at 6.1%, depending on the numbers.
• Compound interest applies to debt just as it does to savings — credit card balances that aren't paid off can grow surprisingly quickly precisely because of this same compounding effect working against you.

Frequently asked questions