Compound Interest Calculator
Calculate compound interest with options for monthly, quarterly, or yearly compounding.
Input Values
Result
Total Maturity Amount
₹0
The Eighth Wonder of the World
Albert Einstein famously called compound interest the “Eighth Wonder of the World”. He said, “He who understands it, earns it… he who doesn’t… pays it.”
Simple vs Compound: A 20 Year Battle
Let’s invest ₹1 Lakh at 10% for 20 years:
- Simple Interest: Returns ₹2 Lakhs. Total = ₹3 Lakhs.
- Compound Interest: Returns ₹5.7 Lakhs. Total = ₹6.7 Lakhs.
Difference: ₹3.7 Lakhs! Just by choosing the right interest type.
Key Factors affecting Growth
- Frequency: Daily > Monthly > Quarterly > Yearly.
- Time: The longer you stay invested, the steeper the growth curve.
- Rate: small differences in rate (e.g., 10% vs 12%) make huge differences over 15-20 years.
Frequently Asked Questions
What is Compound Interest?
Compound interest (or compounding interest) is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
What is the formula for Compound Interest?
The formula is `A = P(1 + r/n)^(nt)`, where A = Final Amount, P = Principal, r = annual rate, n = times compounded per year, and t = years. Total Interest = A - P.
What is the 'Power of Compounding'?
It refers to the exponential growth of money over time as interest earns more interest. Even a small starting amount can grow into a fortune if left to compound for long enough.
Which is better: Monthly or Yearly compounding?
Monthly compounding is better for investors (higher returns) because interest is added to the principal 12 times a year. Yearly compounding adds interest only once.
Do banks use Compound Interest?
Yes, almost all savings accounts, FDs, and RDs use compound interest (usually compounded quarterly). Most loans also work on compounding principles (reducing balance).
What is the Rule of 72?
It is a quick shortcut to estimate the number of years required to double your money. Formula: `Years = 72 / Interest Rate`.
Does inflation affect compounding?
Inflation reduces the 'real' value of your returns. While compounding grows your money, inflation eats into its purchasing power. To grow wealth, your returns must beat inflation.
Can compounding work against me?
Yes! If you have credit card debt, compounding works against you. The unpaid interest is added to your balance, and next month you pay interest on that interest.
What is CAGR?
Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year.
When does the 'magic' happen?
Compounding is slow at first. The real explosive growth usually happens after year 10 or 15. Patience is key.