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CI Formula · Multiple Frequencies · Free Tool
Compound Interest Calculator — Grow Your Wealth Faster
Calculate compound interest instantly using the formula A = P(1+r/n)^(nt). Choose monthly, quarterly, half-yearly or yearly compounding. See year-by-year growth with interactive charts on sipcalculators.net.
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Year-by-Year Compound Interest Breakdown
Detailed growth per year| Year | Opening Balance | Interest | Closing Balance |
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What is Compound Interest?
Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," it is one of the most powerful concepts in finance and investing. Unlike simple interest, which only grows linearly, compound interest grows exponentially over time, making it the cornerstone of wealth building.
Albert Einstein reportedly called compound interest the "eighth wonder of the world," stating that those who understand it earn it, and those who don't pay it. Whether you're investing in fixed deposits, PPF, mutual funds, or any other instrument, understanding compound interest is essential for making informed financial decisions.
Compound Interest Formula
A = P × (1 + r/n)(n × t)
Where:
- A = Final amount (principal + interest)
- P = Principal amount (initial investment)
- r = Annual interest rate (in decimal form, e.g., 8% = 0.08)
- n = Number of times interest is compounded per year (12 for monthly, 4 for quarterly, 2 for half-yearly, 1 for yearly)
- t = Time period in years
The compound interest earned is simply: CI = A − P
Compound Interest vs Simple Interest
The key difference lies in how interest is calculated. Simple interest is computed only on the original principal, while compound interest is computed on the principal plus all previously accumulated interest. Over longer time periods, this difference becomes dramatic.
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Formula | SI = P × r × t | CI = P × (1+r/n)^(nt) − P |
| Interest On | Principal only | Principal + accumulated interest |
| Growth Pattern | Linear | Exponential |
| Rs 1L at 10% for 10 yrs | Rs 2,00,000 | Rs 2,59,374 (yearly) |
| Rs 1L at 10% for 20 yrs | Rs 3,00,000 | Rs 6,72,750 (yearly) |
| Rs 1L at 10% for 30 yrs | Rs 4,00,000 | Rs 17,44,940 (yearly) |
| Best For | Short-term loans | Long-term investments |
As the table shows, at 10% for 30 years, compound interest generates Rs 17.4 lakh from Rs 1 lakh, while simple interest only produces Rs 4 lakh. The longer the duration, the wider the gap grows.
The Power of Compounding
The true magic of compound interest reveals itself over long time horizons. Here's why starting early matters so much:
- Rule of 72: Divide 72 by your interest rate to find how many years it takes to double your money. At 8%, money doubles in ~9 years; at 12%, in ~6 years
- Time is your biggest ally: Rs 1 lakh at 12% becomes Rs 3.1 lakh in 10 years, Rs 9.6 lakh in 20 years, and Rs 30 lakh in 30 years
- Frequency matters: Monthly compounding gives slightly higher returns than yearly compounding for the same rate, because interest starts earning interest sooner
- Early start advantage: Starting 10 years earlier can more than double your final corpus, even with the same total investment amount
- Snowball effect: In the early years, interest earned is modest. But in later years, the interest earned each year can exceed your original principal many times over
This is why financial advisors emphasize starting investments early. Even small amounts invested consistently with compound interest can grow into significant wealth over decades. Use our SIP Calculator to see how regular monthly investments compound over time.
Frequently Asked Questions
What is compound interest and how does it work?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Each compounding period, the interest earned is added to the principal, and the next period's interest is calculated on this larger amount. This creates an exponential growth effect where your money grows faster and faster over time — often described as "interest on interest."
What is the compound interest formula?
The compound interest formula is A = P × (1 + r/n)^(n × t), where A is the final amount, P is the principal, r is the annual interest rate (as a decimal), n is the number of compounding periods per year, and t is the time in years. To find just the interest earned, subtract the principal: CI = A − P.
How does compounding frequency affect my returns?
Higher compounding frequency yields slightly more returns. For Rs 1,00,000 at 10% for 5 years: yearly compounding gives Rs 1,61,051; half-yearly gives Rs 1,62,890; quarterly gives Rs 1,63,862; and monthly gives Rs 1,64,531. The difference is modest for short periods but becomes meaningful over decades with large amounts.
What is the difference between compound interest and simple interest?
Simple interest is calculated only on the original principal using SI = P × r × t. Compound interest is calculated on the principal plus accumulated interest. For example, Rs 1,00,000 at 10% for 20 years yields Rs 3,00,000 with simple interest but Rs 6,72,750 with yearly compound interest — more than double the returns.
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 with compound interest. Divide 72 by the annual interest rate: at 8%, money doubles in about 9 years (72/8); at 12%, it doubles in about 6 years (72/12). It's a handy mental shortcut for financial planning.
Which Indian investments offer compound interest?
Many Indian investments offer compound interest: Fixed Deposits (typically quarterly compounding, 6-8%), PPF (annual compounding, 7.1%), NSC (annual compounding, 7.7%), Sukanya Samriddhi Yojana (annual compounding, 8.2%), NPS (market-linked compounding), and mutual funds through NAV growth. Each has different tax treatments and lock-in periods.