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Interest Calculator
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Simple Interest Formula
A = P(1 + rt)
Where: A = Total Amount, P = Principal, r = Rate, t = Time
A = 100000 × 1.5000
A = ₹0
Compound Interest Calculator: Wealth Multiplication Guide
A Compound Interest Calculator is a powerful financial tool that demonstrates how money grows exponentially when interest is calculated not only on the initial principal but also on accumulated interest from previous periods. Unlike simple interest where returns remain constant, compound interest creates a snowball effect—making it the cornerstone of wealth creation, retirement planning, and long-term investment strategies.
Understanding compound interest is essential for making informed financial decisions about savings accounts, fixed deposits, mutual funds, PPF, EPF, and other investment instruments. Albert Einstein reportedly called compound interest "the eighth wonder of the world," noting that "he who understands it, earns it; he who doesn't, pays it." Our calculator supports both simple and compound interest calculations with multiple compounding frequencies (yearly, half-yearly, quarterly, monthly, weekly, daily), helping you visualize how different parameters impact wealth accumulation.
This free Compound Interest Calculator provides instant results with detailed breakdowns, formula explanations, and step-by-step calculations. Whether you're planning retirement corpus, evaluating fixed deposit returns, comparing investment options, or understanding loan interest costs, accurate compound interest calculations are critical for achieving financial goals and maximizing returns on your hard-earned money.
Understanding Compound Interest Components
Principal Amount
The Principal Amount is the initial sum of money invested or borrowed before any interest is applied. This forms the base for all interest calculations. In investments, it's your initial deposit or lump sum contribution. In loans, it's the borrowed amount. The principal remains constant in simple interest but becomes part of the compounding base in compound interest, growing with each compounding period.
Rate of Interest
The Rate of Interest is the percentage charged or earned on the principal, expressed annually (per annum). For example, 8% per annum means ₹8 earned on every ₹100 invested annually. Higher rates accelerate wealth growth significantly in compound interest scenarios. Banks, mutual funds, and lending institutions determine rates based on market conditions, inflation, credit risk, and regulatory policies like RBI repo rates.
Time Period
The Time Period is the duration for which money is invested or borrowed, typically measured in years. Time is the most powerful factor in compound interest—longer investment horizons create exponential growth through multiple compounding cycles. Starting investments early, even with smaller amounts, often yields better results than larger investments made later due to the extended compounding period.
Compounding Frequency
Compounding Frequency determines how often accumulated interest is added to the principal to calculate new interest. Common frequencies include yearly (1x), half-yearly (2x), quarterly (4x), monthly (12x), weekly (52x), and daily (365x). Higher compounding frequencies result in greater returns—monthly compounding at 8% yields more than yearly compounding at 8% on the same principal and time period. Banks often use quarterly compounding for FDs.
Interest Earned
The Interest Earned is the total profit or gain accrued over the investment period, calculated as Final Amount minus Principal. In compound interest, this includes interest-on-interest, which significantly exceeds simple interest returns over longer periods. For example, ₹1,00,000 at 10% for 20 years yields ₹2,00,000 in simple interest but ₹5,72,750 in compound interest (yearly compounding)—illustrating the dramatic difference.
Total Amount (Maturity Value)
The Total Amount or Maturity Value is the final sum received at the end of the investment period, comprising Principal + Interest Earned. This is what you actually receive when your FD matures, PPF account completes its term, or mutual fund investment is redeemed. The compound interest formula A = P(1 + r/n)^(nt) calculates this value, where n is compounding frequency and t is time in years.
How to Use This Compound Interest Calculator
- Select Interest Type: Choose between Simple Interest or Compound Interest tabs at the top. Simple interest is linear and constant; compound interest grows exponentially. Most savings and investment instruments (FDs, PPF, mutual funds) use compound interest, while some short-term loans use simple interest.
- Enter Principal Amount: Input your initial investment or loan amount in rupees. Use the slider for quick adjustments or type the exact amount. For retirement planning, this could be your starting corpus. For FDs, it's your deposit amount. For loans, it's the borrowed sum.
- Set Interest Rate: Enter the annual interest rate percentage. Check your bank's FD rates (typically 5-7%), PPF rate (currently 7.1%), or mutual fund expected returns (10-12% for equity). For loans, use the rate quoted by your lender. Rates significantly impact final returns—even 1-2% difference compounds dramatically over decades.
- Specify Time Period: Enter the investment or loan duration in years. Use sliders or input fields. For retirement planning, calculate from current age to retirement age. For goal-based investments, use the timeframe until your goal (e.g., 15 years for child's education, 25 years for retirement).
- Choose Compounding Frequency (for Compound Interest): Select how often interest compounds—yearly, half-yearly, quarterly, monthly, weekly, or daily. Bank FDs typically compound quarterly. PPF compounds yearly. Mutual funds calculate returns daily. Higher frequency means slightly higher returns on the same rate and principal.
- Review Results: Instantly view your Total Amount, Interest Earned, and detailed breakdown. The calculator shows the formula used and step-by-step calculation. Compare simple vs. compound interest to see the power of compounding. Use these results to plan investments, compare offers, or understand loan costs.
Practical Example: Retirement Planning with Compound Interest
Scenario: Rajesh, aged 30, wants to build a retirement corpus by age 60. He has ₹5,00,000 to invest as a lump sum and wants to compare different investment options with varying interest rates and compounding frequencies to understand potential outcomes.
| Investment Option | Interest Rate | Compounding | Maturity Amount (30 years) | Interest Earned |
|---|---|---|---|---|
| Bank FD | 6.5% p.a. | Quarterly | ₹33,18,697 | ₹28,18,697 |
| PPF | 7.1% p.a. | Yearly | ₹38,41,356 | ₹33,41,356 |
| Debt Mutual Fund | 8% p.a. | Monthly | ₹50,99,295 | ₹45,99,295 |
| Balanced Fund | 10% p.a. | Daily | ₹1,00,42,677 | ₹95,42,677 |
| Equity Mutual Fund | 12% p.a. | Daily | ₹1,79,49,983 | ₹1,74,49,983 |
Key Insights:
- Rate impact is exponential: The difference between 6.5% (FD) and 12% (equity fund) isn't merely double—the equity fund yields ₹1.79 crores vs. ₹33 lakhs, a 5.4x difference over 30 years due to compound growth.
- Time is your greatest asset: Starting at age 30 gives Rajesh 30 years of compounding. If he waited until age 40, even with the same ₹5 lakh and 12% returns, he'd accumulate only ₹57.98 lakhs (20 years)—₹1.21 crores less than starting 10 years earlier.
- Compounding frequency matters (but less than rate/time): At 10% for 30 years, yearly compounding yields ₹87.25 lakhs while daily compounding yields ₹1.00 crores—a meaningful ₹12.75 lakh difference, though smaller than rate/time impacts.
- Risk-return tradeoff: Higher returns (equity funds at 12%) come with market volatility. Lower returns (FDs at 6.5%) offer guaranteed safety. Balanced portfolios mixing debt and equity optimize risk while capturing compound growth.
- Inflation consideration: With 6% average inflation, ₹33 lakhs from FD has real purchasing power of ~₹5.76 lakhs in today's terms, barely above principal. Equity's ₹1.79 crores has real value of ~₹31 lakhs—actual wealth creation requires returns exceeding inflation.
Investment Strategy Tip: Don't put all funds in one option. Diversify across asset classes: 50% in equity mutual funds (high growth), 30% in PPF/debt funds (stability), 20% in liquid assets (emergency fund). Rebalance annually. Start SIPs alongside lump sum investments to rupee-cost average and build discipline. Review and increase investments with salary hikes to accelerate wealth accumulation.
Why Compound Interest Calculator Matters
- Visualize Exponential Growth: See how compound interest creates wealth exponentially compared to simple interest's linear growth. Understand why starting early matters more than investing larger amounts later. Witness how an extra 2% annual return or 5 additional years dramatically changes maturity values—motivating better financial planning and investment discipline.
- Compare Investment Options: Evaluate different instruments (FDs, PPF, mutual funds, NPS) by calculating returns with their respective rates and compounding frequencies. Identify which options align with your risk tolerance, time horizon, and financial goals. Make data-driven decisions rather than relying on marketing promises or anecdotal advice.
- Retirement Planning: Calculate required corpus for retirement by working backwards from desired monthly income. Determine how much to invest now at realistic return rates to achieve goals. Understand whether your current savings rate is sufficient or if you need to increase contributions. Plan for inflation by ensuring returns exceed inflation by 3-4% to maintain real purchasing power.
- Goal-Based Savings: Calculate exact investment amounts needed for specific goals—child's education in 15 years, home down payment in 5 years, wedding in 10 years. Reverse-engineer monthly SIP amounts or lump sum investments required to accumulate target corpus. Track progress periodically and adjust contributions if returns deviate from expectations.
- Understand Loan Costs: While beneficial for investments, compound interest on loans (credit cards, personal loans) works against borrowers. Calculate true cost of borrowing when interest compounds monthly. Understand why minimum credit card payments trap you in debt—₹50,000 at 36% annual interest (3% monthly compounding) becomes ₹2.44 lakhs in 5 years if unpaid.
- Financial Education: Teach children, students, and young adults about the power of compounding through tangible examples. Demonstrate why saving ₹5,000 monthly from age 25 beats saving ₹20,000 monthly from age 40. Build a culture of early investing, patience, and long-term thinking—essential traits for wealth creation and financial independence.
Frequently Asked Questions
Simple Interest: Calculated only on the principal amount. Interest remains constant each period. Formula: SI = P × r × t. For ₹1,00,000 at 10% for 5 years: Interest = ₹50,000 (₹10,000 per year). Total = ₹1,50,000.
Compound Interest: Calculated on principal + accumulated interest. Interest grows each period. Formula: A = P(1 + r/n)^(nt). Same ₹1,00,000 at 10% for 5 years (yearly compounding): Total = ₹1,61,051. Interest = ₹61,051.
Difference: Compound interest earns ₹11,051 more (22% higher) in just 5 years. Over 20 years, simple interest yields ₹2,00,000 while compound yields ₹5,72,750—a 186% increase. The gap widens dramatically with time, making compound interest crucial for long-term wealth creation.
Compounding frequency determines how often interest is added to principal for recalculation. More frequent compounding yields higher returns on the same rate.
Example: ₹1,00,000 at 12% for 10 years:
- Yearly compounding: ₹3,10,585 (interest: ₹2,10,585)
- Quarterly compounding: ₹3,26,204 (interest: ₹2,26,204) — ₹15,619 more
- Monthly compounding: ₹3,30,039 (interest: ₹2,30,039) — ₹19,454 more
- Daily compounding: ₹3,31,946 (interest: ₹2,31,946) — ₹21,361 more
Practical impact: While daily compounding beats yearly by ₹21,361 (10% improvement), the difference between monthly and daily is minimal (₹1,907). Most institutions use quarterly (FDs) or daily (savings accounts) compounding. Focus more on securing higher interest rates than chasing marginal frequency benefits.
The Rule of 72 is a quick mental formula to estimate how long it takes to double your money at a given interest rate: Years to Double = 72 ÷ Interest Rate
Examples:
- At 6% interest: 72 ÷ 6 = 12 years to double
- At 8% interest: 72 ÷ 8 = 9 years to double
- At 12% interest: 72 ÷ 12 = 6 years to double
- At 18% interest: 72 ÷ 18 = 4 years to double
Application: If you invest ₹10 lakhs in an equity fund averaging 12% returns, it becomes ₹20 lakhs in ~6 years, ₹40 lakhs in ~12 years, ₹80 lakhs in ~18 years, and ₹1.6 crores in ~24 years. This quick estimation helps set realistic return expectations and understand why early investing matters—you get more "doubling cycles" over your lifetime.
Limitation: Most accurate for rates between 6-10%. For precise calculations, use a compound interest calculator.
Compound interest is exponential—it grows faster over time. Each year's returns generate their own returns in subsequent years, creating a snowball effect. More years = more compounding cycles.
Example: Two investors, same total investment, different timing
Investor A (Early Start): Invests ₹5,000/month from age 25-35 (10 years). Total invested = ₹6,00,000. Stops at 35, lets it grow until 60 at 12% annual returns. Corpus at 60: ₹2.16 crores.
Investor B (Late Start): Invests ₹5,000/month from age 35-60 (25 years). Total invested = ₹15,00,000. Corpus at 60: ₹1.87 crores.
Result: Investor A invests ₹9 lakhs LESS but accumulates ₹29 lakhs MORE by starting 10 years earlier. Those extra 10 years of compounding (age 25-35) generate massive returns from ages 35-60. Time in the market beats timing the market.
Key takeaway: Don't wait for higher salary or "perfect" timing. Start with whatever you can afford now—₹1,000/month at age 22 beats ₹10,000/month at age 35 for building long-term wealth.
Compound Interest Formula: A = P(1 + r/n)^(nt)
Where:
- A = Final amount (maturity value)
- P = Principal amount (initial investment)
- r = Annual interest rate (in decimal, e.g., 8% = 0.08)
- n = Compounding frequency per year (yearly=1, quarterly=4, monthly=12)
- t = Time period in years
Step-by-step example: ₹50,000 at 8% for 3 years with quarterly compounding
- P = 50,000
- r = 8/100 = 0.08
- n = 4 (quarterly)
- t = 3 years
- A = 50,000 × (1 + 0.08/4)^(4×3)
- A = 50,000 × (1 + 0.02)^12
- A = 50,000 × (1.02)^12
- A = 50,000 × 1.2682 = ₹63,410
- Interest = ₹63,410 - ₹50,000 = ₹13,410
For quick calculations, use our calculator instead of manual computation, especially for daily compounding or long time periods where exponents become complex.
Compound Interest Instruments:
- Fixed Deposits (FDs): Quarterly compounding. Banks offer 5-7% for regular citizens, 0.5% extra for senior citizens. Cumulative FDs reinvest interest; non-cumulative pay out periodically.
- Public Provident Fund (PPF): Yearly compounding at 7.1% (current rate). 15-year lock-in with EEE tax benefits. Interest calculated on minimum balance between 5th and end of month.
- Employee Provident Fund (EPF): Yearly compounding at 8.15% (current rate). Mandatory for salaried employees. Both employee and employer contribute 12% of basic salary.
- Mutual Funds: NAV-based daily compounding. Equity funds historically return 10-12%, debt funds 6-8%. Compounding through reinvested dividends and capital gains.
- National Savings Certificate (NSC): Yearly compounding at 7% (current rate). 5-year lock-in. Interest taxable but qualifies for Section 80C deduction.
- Recurring Deposits (RD): Quarterly compounding. Similar rates to FDs (5-7%). Monthly deposits required; premature withdrawal penalties apply.
- Sukanya Samriddhi Yojana: Yearly compounding at 8% (current rate). For girl child education/marriage. 21-year maturity, EEE tax benefits, minimum ₹250/year investment.
Note: Government scheme rates are reviewed quarterly by the Ministry of Finance. Bank FD rates vary by institution and tenure.
Nominal returns are the stated interest rates. Real returns are nominal returns minus inflation—what actually increases your purchasing power.
Formula: Real Return ≈ Nominal Return - Inflation Rate
Example: ₹10 lakhs invested for 20 years at 7% (PPF) with 6% average inflation
- Nominal maturity value: ₹38.70 lakhs (calculation: 10,00,000 × (1.07)^20)
- Future value of ₹10 lakhs in 20 years: ₹32.07 lakhs (inflation-adjusted: 10,00,000 × (1.06)^20)
- Real purchasing power: ₹38.70 lakhs ÷ 3.207 = ₹12.06 lakhs in today's terms
- Real gain: Only ₹2.06 lakhs (20% real growth over 20 years)
Implications:
- Safe instruments (FDs at 6.5%) barely beat inflation (6%)—real returns ~0.5%
- PPF at 7.1% gives ~1% real return—preserves capital but limited wealth creation
- Equity funds at 12% deliver ~6% real return—actual wealth multiplication
Strategy: For long-term goals (15+ years), allocate majority to inflation-beating assets like equity funds. Use FDs/PPF for short-term goals (3-7 years) and emergency funds where capital preservation matters more than high returns.
Guaranteed instruments: No loss of principal. FDs, PPF, NSC, EPF are backed by banks or government. You receive promised returns regardless of market conditions. However, inflation can erode real purchasing power even if nominal value increases.
Market-linked instruments: Yes, temporary or permanent losses possible. Equity mutual funds, stocks, and balanced funds fluctuate with markets. You may see negative returns in bad years.
Example: Equity fund volatility
- Year 1: ₹1,00,000 → ₹1,20,000 (+20%)
- Year 2: ₹1,20,000 → ₹1,02,000 (-15%)
- Year 3: ₹1,02,000 → ₹1,22,400 (+20%)
- Year 4: ₹1,22,400 → ₹1,34,640 (+10%)
- Year 5: ₹1,34,640 → ₹1,61,568 (+20%)
Average return: ~10% per year. Despite Year 2's loss, compounding over 5 years yields 61.5% total gain.
Risk mitigation:
- Time horizon: Equity needs 7-10+ years to smooth volatility. Don't invest money needed in 2-3 years.
- Diversification: Don't put all funds in one stock or sector. Use diversified mutual funds.
- SIP approach: Invest fixed amounts monthly. Rupee-cost averaging reduces impact of market timing.
- Asset allocation: Mix equity (growth) with debt (stability) based on age and risk tolerance. Rebalance annually.
Cumulative FD (Reinvestment FD): Interest is not paid out periodically. It's added to principal and reinvested, compounding until maturity. Full amount (principal + accumulated interest) received at maturity.
Non-Cumulative FD (Payout FD): Interest is paid out monthly, quarterly, or annually. Principal remains constant. Essentially earns simple interest on the original principal if you spend the payouts.
Comparison: ₹5,00,000 at 7% for 5 years (quarterly compounding)
- Cumulative FD: Maturity value = ₹7,08,516 (Interest earned: ₹2,08,516)
- Non-Cumulative FD (quarterly payout): Principal = ₹5,00,000. Total interest paid over 5 years = ₹1,75,000 (₹8,750 per quarter). Final value = ₹5,00,000 + ₹1,75,000 = ₹6,75,000
- Difference: Cumulative FD yields ₹33,516 more (16% higher returns) due to compounding
Choose Cumulative FD if: You don't need regular income, want maximum growth, and can wait until maturity. Ideal for goal-based savings (child education, retirement).
Choose Non-Cumulative FD if: You need regular income (retirees, supplementary income), or want liquidity for monthly expenses. Accept lower total returns for periodic cash flow.
Tax note: Interest on FDs is taxable annually even in cumulative FDs (TDS applicable if interest > ₹40,000 for regular citizens, ₹50,000 for seniors). Plan tax outflows accordingly.
The required investment depends on your expected rate of return. Use the formula: P = A / (1 + r/n)^(nt) where A is target amount (₹1 crore).
Lump Sum Investment Required for ₹1 Crore in 20 Years:
- At 6% (FD): ₹31,18,047 (invest ₹31.18 lakhs now)
- At 8% (Balanced fund): ₹21,45,482 (invest ₹21.45 lakhs now)
- At 10% (Debt+Equity mix): ₹14,86,436 (invest ₹14.86 lakhs now)
- At 12% (Equity fund): ₹10,36,731 (invest ₹10.37 lakhs now)
- At 15% (Aggressive equity): ₹6,10,271 (invest ₹6.10 lakhs now)
Alternative: SIP (Monthly Investment) for ₹1 Crore in 20 Years:
- At 8%: ₹17,013/month for 20 years (total invested: ₹40.83 lakhs)
- At 10%: ₹13,075/month for 20 years (total invested: ₹31.38 lakhs)
- At 12%: ₹10,086/month for 20 years (total invested: ₹24.21 lakhs)
- At 15%: ₹6,850/month for 20 years (total invested: ₹16.44 lakhs)
Strategy: Most people can't invest large lump sums but can manage monthly SIPs. Start with ₹10,000-15,000/month in diversified equity funds. Increase SIP by 10% annually with salary hikes (Step-Up SIP). This disciplined approach, combined with compound interest over 20+ years, builds substantial wealth for retirement or major life goals.