Compound interest formula
A = P × (1 + r/n)^(n × t) Compound interest = A − P
- A = Final amount
- P = Principal (the amount you start with)
- r = Yearly interest rate in decimal (8% = 0.08)
- n = Number of times interest is compounded per year (1 yearly, 4 quarterly, 12 monthly, 365 daily)
- t = Time in years
Example: ₹1,00,000 at 8% for 10 years grows to ₹2,15,892 with yearly compounding and ₹2,21,964 with monthly compounding. The same money at simple interest would only reach ₹1,80,000.
Why compounding frequency matters
| Compounding | ₹1 lakh at 8% for 10 years | Interest earned |
|---|---|---|
| Yearly | ₹2,15,892 | ₹1,15,892 |
| Half-yearly | ₹2,19,112 | ₹1,19,112 |
| Quarterly | ₹2,20,804 | ₹1,20,804 |
| Monthly | ₹2,21,964 | ₹1,21,964 |
| Daily | ₹2,22,535 | ₹1,22,535 |
More frequent compounding earns a little more, but the difference is small compared with the effect of time and rate. Indian bank fixed deposits compound quarterly; savings accounts calculate interest daily and credit it quarterly; PPF compounds yearly.
The power of compounding over time
Compounding is slow at first and fast later. ₹1 lakh at 12% becomes ₹1.76 lakh in 5 years, ₹3.1 lakh in 10 years, ₹9.6 lakh in 20 years and ₹30 lakh in 30 years. The last 10 years add more than the first 20 years combined. That is why starting early matters more than starting big.
A quick shortcut is the rule of 72: divide 72 by the interest rate to get the years needed to double your money. At 8% money doubles in about 9 years; at 12% in 6 years.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal every year. Compound interest is calculated on the principal plus the interest already earned, so the amount grows faster the longer you stay invested.
Which compounding frequency do Indian banks use?
Fixed deposits and recurring deposits compound quarterly. Savings account interest is calculated on the daily balance and paid quarterly. Loans are generally charged monthly on the reducing balance.
Can I use this calculator for other currencies?
Yes. Pick USD, EUR, GBP, AED or any listed currency from the dropdown. The formula is the same everywhere; only the symbol and number format change.
How is compound interest different from a SIP calculation?
This calculator is for a single lumpsum deposit. If you add money every month, use the SIP calculator, which compounds each monthly instalment separately.
Is compound interest taxable in India?
Interest from FDs, RDs and savings accounts is added to your income and taxed at your slab rate. PPF interest is tax free. Returns from equity mutual funds are taxed as capital gains.
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View allDisclaimer: This calculator is for information purposes only. Results are estimates based on the inputs you provide and do not guarantee any returns. Please consult a qualified financial advisor before making investment or tax decisions.