What is compound interest?
Compound interest is interest earned on both the principal and the interest already accumulated. Because each period's interest is added to the base, the balance grows faster and faster — the effect Einstein supposedly called the eighth wonder of the world. Bank fixed deposits (quarterly), PPF and NSC (yearly), mutual funds (continuously in effect) and loans (monthly) all work on compounding.
Formula
A = P × (1 + r ÷ n)n × t, where P is principal, r the annual rate as a decimal, n the number of compounding periods per year and t the number of years. Compound interest = A − P.
Worked example
₹1,00,000 at 10% for 10 years compounded yearly: A = 1,00,000 × 1.1010 = ₹2,59,374. Compounded quarterly: A = 1,00,000 × (1.025)40 = ₹2,68,506. Monthly: ₹2,70,704. Simple interest for the same period would be only ₹2,00,000 — compounding adds ₹59,374 to ₹70,704 extra.
Compounding frequency matters
- Yearly → effective rate 10.00%
- Half-yearly → 10.25%
- Quarterly → 10.38%
- Monthly → 10.47%
- Daily → 10.52%
The difference between monthly and daily is small, but between yearly and quarterly is meaningful over long periods. Always ask what frequency a product uses when comparing rates.
Additional contributions
Enter an optional monthly, quarterly or yearly contribution to model a savings plan where you keep adding money. The year-wise table then shows opening balance, amount added, interest earned and closing balance for each year, and the chart compares amount invested against value.
Rule of 72
To estimate doubling time, divide 72 by the interest rate: at 8% money doubles in about 9 years; at 12% in about 6 years. Use the calculator for the exact figure.
Who should use this calculator
Savers comparing FD, NSC and KVP offers quoted with different compounding, borrowers estimating how a credit card or overdraft balance grows if left unpaid, and students or accountants who need a quick, accurate year-wise interest table with CSV or Excel export.
Frequently Asked Questions
What compounding frequency do Indian banks use for FDs?
Quarterly. A 7% FD therefore yields an effective 7.19% per annum.
Does more frequent compounding always give more interest?
Yes, but with diminishing returns. The jump from yearly to quarterly matters; from daily to continuous is negligible.
How is the effective annual rate calculated?
Effective rate = (1 + r/n)^n − 1. For 10% compounded monthly it is 10.47%.
Can I use this for loans?
Yes — set monthly compounding to see how an unpaid balance grows, for example on a credit card at 36–42% per annum.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.