Compound Interest

Compound interest is interest that itself earns interest: each period's interest is added to the principal, so the next period earns on a bigger base. That is why a deposit left alone grows in a curve rather than a straight line. Enter your principal, rate, tenure and compounding frequency above to see the total instantly.

The formula behind it is 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 a year and t the years. Indian banks compound FDs quarterly, PPF annually and most loans monthly — switch the frequency toggle to match whatever scheme you are evaluating.

How does compound interest work?

Each compounding period adds r/n to your balance and then the next period works on that larger balance, which is where the exponent n×t comes from. Take ₹1,00,000 at 8% for 10 years compounded yearly: A = 1,00,000 × (1.08)¹⁰ = ₹2,15,892, so ₹1,15,892 is interest. Simple interest on the same deposit would pay only ₹80,000 — the extra ₹35,892 is interest earned on interest.

Frequency matters too, though less than people expect. That same ₹1,00,000 at 8% for 10 years grows to ₹2,15,892 compounded yearly, ₹2,19,112 half-yearly, ₹2,20,804 quarterly and ₹2,21,964 monthly — a ₹6,072 spread between the slowest and fastest rests. Time is the far bigger lever, which is what the rule of 72 captures: divide 72 by the rate to estimate the doubling period. At 8% that predicts 9 years, and the year-wise table confirms it, with the balance reaching ₹1,99,900 at the end of year 9.

How to use this calculator

• Set the principal — the one-time amount you are depositing or investing.
• Enter the annual interest rate exactly as quoted; do not divide it yourself for the compounding frequency.
• Choose the time period in years, then watch how the curve steepens as you extend it.
• Pick the compounding frequency to match the product: quarterly for bank FDs, yearly for PPF and NSC, monthly for most loan and card balances.
• Open the year-by-year table to see the balance at each anniversary and how much of it is interest.

Making compounding work for you in India

The single biggest driver of a compounded corpus is how long the money stays invested, not the rate. ₹1,00,000 at 8% doubles in about 9 years, quadruples in 18 and reaches roughly 8x in 27 — each doubling adds more rupees than every doubling before it combined. That is the argument for starting a PPF, EPF or equity SIP in your twenties rather than waiting for a bigger salary.

Compounding also works against you on the borrowing side. A credit card charging 3.5% a month compounds to about 51% a year, and a personal loan's outstanding balance compounds monthly, which is why clearing high-cost debt usually beats any investment you could make with the same money. On the tax side, remember that interest credited to a bank FD or RD is taxable in the year it accrues even if you receive it only at maturity, so the after-tax compounding rate for a 30% slab taxpayer on an 8% FD is nearer 5.6% — one reason tax-free vehicles like PPF and EPF compound so much more effectively over long horizons.

Frequently asked questions