Compound Interest Calculator
Compound interest is the interest calculated on the initial principal and the accumulated interest from preceding periods. Often termed the "eighth wonder of the world," compounding accelerates wealth creation exponentially over extended investment horizons.
Input Variables
Live ComputeTotal wealth created: ₹ 19,059 on ₹25,000 initial capital.
Your numbers are computed live directly in your browser. All calculations adhere to verified statutory standards.
Compound Interest Formula
- A = Final accumulated maturity corpus.
- P = Initial principal amount invested.
- r = Nominal annual interest rate (in decimal format, e.g. 10% = 0.10).
- n = Compounding frequency per year (1 for annual, 4 for quarterly, 12 for monthly).
- t = Total investment duration in years.
Practical Worked Example
Investing ₹1,00,000 for 5 years at an annual interest rate of 12% compounded monthly.
- Monthly interest rate: r / 12 = 0.12 / 12 = 0.01.
- Total compounding cycles: n × t = 12 × 5 = 60 periods.
- Compounding multiplier: (1 + 0.01)^60 = 1.8166967.
- Total maturity corpus: ₹1,00,000 × 1.8166967 = ₹1,81,670.
- Net interest earned: ₹1,81,670 - ₹1,00,000 = ₹81,670.
Frequently Asked Questions
What is the practical difference between simple and compound interest?
In simple interest, interest is earned only on the initial principal deposit. In compound interest, interest earned in each period is added to the principal, earning interest on interest in subsequent cycles.
How does compounding frequency impact returns?
Higher compounding frequencies (daily or monthly vs annual) yield slightly higher effective annual returns because interest begins generating returns sooner. For example, 10% compounded monthly has an Effective Annual Rate (EAR) of 10.47%.
What is the Rule of 72 for compounding?
The Rule of 72 is a mental shortcut to estimate how many years it takes to double your money. Divide 72 by the annual expected return. At 12% annual return, your money doubles in approximately 72 / 12 = 6 years.
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Disclaimer: This tool provides computational estimates for educational and informational purposes only. It does not constitute personal financial, tax, or legal advice. Consult a certified financial planner or CA for specific advice.