Compound Interest Calculator
Calculate compound interest with different frequencies
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About Compound Interest Calculator
Compound Interest is interest calculated on both the principal and the accumulated interest from previous periods. This 'interest on interest' effect makes your money grow faster than simple interest. The more frequently interest compounds (daily vs yearly), the more you earn. Einstein reportedly called compound interest the 'eighth wonder of the world' - those who understand it, earn it; those who don't, pay it.
How is Compound Interest Calculated?
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Enter Principal amount
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Enter annual Interest Rate
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Enter Time Period in years
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Select Compounding Frequency
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Formula: A = P(1 + r/n)^(nt)
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Compound Interest = A - P
Example:
₹1 lakh at 8% for 5 years with yearly compounding = ₹1.47 lakhs (₹47,000 interest). With monthly compounding = ₹1.49 lakhs (₹49,000 interest)!
Key Benefits
Power of Compounding: Earns interest on interest
Higher Returns: Always better than simple interest
Frequency Matters: More frequent compounding = higher returns
Long-term Wealth: The longer the period, the bigger the difference
Exponential Growth: Growth accelerates over time
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on the initial principal plus all accumulated interest from previous periods. Unlike simple interest which is calculated only on principal, compound interest grows exponentially.
How is compound interest different from simple interest?
Simple interest is calculated only on principal: SI = P×R×T/100. Compound interest includes accumulated interest: CI = P(1+r/n)^(nt) - P. Compound interest always gives higher returns than simple interest.
Which compounding frequency is best?
More frequent compounding gives higher returns. Order from highest to lowest returns: Daily > Monthly > Quarterly > Half-Yearly > Yearly. However, the difference between monthly and daily is usually small.
How much difference does compounding frequency make?
For ₹1 lakh at 10% for 5 years: Yearly = ₹1.61L, Quarterly = ₹1.64L, Monthly = ₹1.65L, Daily = ₹1.65L. The difference increases with higher rates and longer periods.
Do banks use compound interest for FDs?
Yes! Most bank Fixed Deposits use compound interest with quarterly compounding. Some offer monthly or annual compounding - always check the compounding frequency before investing.
Can I calculate monthly compound interest?
Yes! Use compounding frequency as 'Monthly' (n=12). The formula automatically adjusts: Amount = Principal × (1 + Rate/12)^(12×Years).
Is compound interest taxable in India?
Yes, all interest earned (simple or compound) is added to your income and taxed as per your income tax slab. TDS is deducted if interest exceeds ₹40,000 per year (₹50,000 for senior citizens).
How long does it take to double money with compound interest?
Use Rule of 72: Years to double ≈ 72 / Interest Rate. At 8%, money doubles in ~9 years. At 12%, it doubles in ~6 years. This assumes annual compounding.
Should I choose monthly or quarterly compounding?
Always choose more frequent compounding (monthly over quarterly) if the interest rate is the same. The returns will be slightly higher with monthly compounding.
Do SIPs use compound interest?
SIPs don't directly use compound interest formula, but the concept is similar. Your returns get reinvested, creating a compounding effect. That's why SIPs are powerful for long-term wealth creation.
How is compounding frequency represented?
Yearly (n=1), Half-Yearly (n=2), Quarterly (n=4), Monthly (n=12), Daily (n=365). In the formula A = P(1+r/n)^(nt), 'n' is the compounding frequency per year.
Can compound interest work against me?
Yes! If you're a borrower (credit cards, loans with compound interest), it works against you. Credit card debt compounds monthly, making it very expensive. That's why paying minimum due on credit cards is dangerous.