Compound Interest Calculator
See how compound interest grows your wealth over time. Enter a lump sum, pick your compounding frequency, and add monthly contributions to model real-world investment growth.
Parameters
₹1 Lakh
Compounding Frequency
Final Amount
₹2.21 Lakh
10 yr · 8% p.a. · Quarterly
Total Invested
₹1,00,000
Interest Earned
₹1,20,804
Final Amount
₹2,20,804
Growth — Principal + Interest per Year
Year-by-Year Breakdown
| Year | Opening Balance | Contributions | Interest Earned | Closing Balance |
|---|---|---|---|---|
| Year 1 | ₹1,00,000 | ₹0 | ₹8,243 | ₹1,08,243 |
| Year 2 | ₹1,08,243 | ₹0 | ₹8,923 | ₹1,17,166 |
| Year 3 | ₹1,17,166 | ₹0 | ₹9,658 | ₹1,26,824 |
| Year 4 | ₹1,26,824 | ₹0 | ₹10,454 | ₹1,37,279 |
| Year 5 | ₹1,37,279 | ₹0 | ₹11,316 | ₹1,48,595 |
| Year 6 | ₹1,48,595 | ₹0 | ₹12,249 | ₹1,60,844 |
| Year 7 | ₹1,60,844 | ₹0 | ₹13,259 | ₹1,74,102 |
| Year 8 | ₹1,74,102 | ₹0 | ₹14,352 | ₹1,88,454 |
| Year 9 | ₹1,88,454 | ₹0 | ₹15,535 | ₹2,03,989 |
| Year 10 | ₹2,03,989 | ₹0 | ₹16,815 | ₹2,20,804 |
How It Works
Compound interest means you earn interest not just on your original principal, but also on the interest already accumulated. This snowball effect — often called 'interest on interest' — is what makes long-term investing so powerful. The compounding frequency determines how often interest is calculated and added back to your balance. Monthly compounding gives a slightly higher return than annual compounding at the same nominal rate, because each interest credit becomes part of the base for the next calculation. Adding even a small regular contribution dramatically accelerates growth over long horizons, because each new deposit also earns compound interest for the remaining term.
Compound Interest Formula
A = P × (1 + r/n)^(n×t) — where P is principal, r is annual rate/100, n is compounding frequency per year, and t is tenure in years. With monthly contributions C: add C × (12/n) × [(1 + r/n)^(n×t) − 1] / (r/n).
Example: ₹1 lakh at 8% p.a. (quarterly) for 10 years — A = 1,00,000 × (1 + 0.08/4)^40 ≈ ₹2,20,804. Interest earned: ₹1,20,804. EAR = (1.02)^4 − 1 = 8.24%.
Add ₹5,000/month: final amount jumps to roughly ₹10.3 lakh — showing the power of regular contributions compounding alongside your principal.
Key Terms
- P — Principal
- Your initial lump-sum investment.
- r — Annual rate
- Nominal interest rate ÷ 100. E.g., 8% → 0.08.
- n — Frequency
- Compounding periods per year: Monthly=12, Quarterly=4, Half-yearly=2, Annual=1.
- t — Tenure
- Investment duration in years.
- EAR — Effective Annual Rate
- (1 + r/n)^n − 1. True annual yield including intra-year compounding.
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 only applies to the principal), compound interest causes your balance to grow exponentially over time — especially visible over long tenures.
How does compounding frequency affect returns?
The more frequently interest is compounded, the higher your effective annual yield. At 10% nominal rate: annual compounding gives 10.00% EAR, quarterly gives 10.38%, monthly gives 10.47%, and daily gives 10.52%. The difference is small for short tenures but compounds meaningfully over 20–30 years.
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal: SI = P × r × t. Compound interest recalculates interest on the growing balance each period. For ₹1 lakh at 10% for 20 years: simple interest gives ₹2 lakh total, while compound interest (annual) gives ₹6.73 lakh — more than 3× more.
What is the Rule of 72?
The Rule of 72 is a quick mental shortcut: divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 8% p.a., money doubles in roughly 72 ÷ 8 = 9 years. At 12%, it doubles in 6 years. It's accurate to within a year for rates between 6–20%.
Why do regular contributions matter so much?
Each additional contribution you make earns compound interest for the remaining tenure. A ₹5,000/month contribution for 20 years at 10% p.a. (quarterly compounding) grows to roughly ₹38 lakh — far exceeding the ₹12 lakh you actually put in. Early contributions earn the most, which is why starting early is the single most powerful wealth-building habit.
Is compound interest applicable to loans?
Yes. Loans can also compound against you. Credit card debt compounds monthly — if you carry a ₹1 lakh balance at 36% p.a. for 2 years without paying, you owe roughly ₹2 lakh. This is why clearing high-interest debt is mathematically equivalent to earning the same interest rate as a guaranteed return.