Compound interest is interest earned on both your original principal and on previously earned interest. The longer you leave money invested, the more dramatic the effect — money compounded over 30 years grows roughly 10× faster than the same money under simple interest.
What is Compound Interest?
Compound interest is what makes long-term investing work. Instead of earning interest only on the amount you originally put in (that is simple interest), you earn interest on the interest itself, repeatedly. Year 1's interest joins your principal, then year 2's interest is calculated on that larger total, and so on. The result is exponential growth that looks unimpressive in early years and astonishing later on.
Most real-world investments compound. A bank fixed deposit compounds quarterly. A savings account compounds daily. A mutual fund compounds continuously through reinvested gains. Even a credit card debt compounds — except in that case the math works against you. Understanding how compounding actually accumulates is one of the highest-leverage pieces of financial literacy you can pick up.
The calculator above lets you adjust four levers — principal, rate, time, and compounding frequency — to see how each affects the final amount. Time is the most powerful of the four. A modest sum left for 30 years usually beats a much larger sum left for 10, even at the same interest rate.
The compound interest formula
Compound interest grows the principal by a fixed percentage at each compounding interval. The more frequently it compounds (yearly → quarterly → monthly → daily), the slightly higher the final amount, because earned interest starts earning its own interest faster.
- A
- Final amount—principal + interest after time t
- P
- Principal—the initial investment
- r
- Annual interest rate—as a decimal — 8% becomes 0.08
- n
- Compounding frequency—times per year interest is added (1 = annual, 4 = quarterly, 12 = monthly, 365 = daily)
- t
- Time—duration in years
How to use this calculator
Adjust any input above to see the result update instantly. Use this calculator to model FDs, savings accounts, bonds, or any investment with a fixed rate.
Enter your principal
The amount you start with. For a one-time investment, this is your full deposit. For an existing investment, use the current balance.
Set the annual interest rate
The rate quoted by your bank or investment, expressed as a yearly percentage. FDs in India quote between 6.5% and 7.5% in 2026. Bonds vary widely. PPF currently offers 7.1%.
Set the duration in years
Years you plan to leave the money compounding. Increasing this is the single most powerful change you can make — even a few extra years dramatically increases the final amount.
Choose the compounding frequency
Most Indian banks compound FDs quarterly (n=4). Savings accounts compound daily (n=365). PPF compounds annually (n=1). Match the calculator to the actual compounding interval of your investment for an accurate result.
Compare with simple interest
Use the related Simple Interest calculator with the same inputs. The gap shows you exactly how much extra you earn from compounding — often 30–50% more over 20 years at moderate rates.
Real-world uses of compound interest
Bank Fixed Deposits
All Indian bank FDs use compound interest, typically quarterly. The maturity amount printed on your FD certificate is calculated using exactly this formula.
Public Provident Fund (PPF)
PPF compounds annually at the rate notified each quarter (7.1% as of 2026). Tax-free returns. The calculator helps you project the corpus at the end of the 15-year lock-in.
Bonds and debentures
Cumulative bonds reinvest the coupon, compounding the value. Use this calculator to project the maturity amount before buying.
Inflation modelling
Inflation works exactly like compound interest in reverse. Use 6% to see how purchasing power erodes over 20–30 years — the result is sobering.
Loan interest comparison
Credit cards compound monthly. A ₹50,000 unpaid card balance at 36% APR balloons to over ₹71,000 in just one year. The calculator makes this concrete.
Children's savings plans
Sukanya Samriddhi, Senior Citizen Savings Scheme, NSC — all use compound interest. The calculator projects exactly how much you will have when the lock-in ends.
Common mistakes to avoid
Confusing annual rate with monthly rate
If a bank says '0.6% per month', the annual nominal rate is 7.2%, but the effective annual rate (with compounding) is closer to 7.44%. Always clarify which rate is being quoted.
Withdrawing interest periodically and missing the compounding effect
Pulling interest out every year converts a compound-interest investment into a simple-interest one. Reinvest the interest to keep compounding alive.
Ignoring the impact of taxes on the effective compound rate
Interest from FDs and savings accounts is fully taxable. A 7.5% FD at 30% tax slab effectively compounds at 5.25%. Use the post-tax rate for realistic projections.
Comparing compound-interest products to equity returns directly
Equity returns are not really compounding — they are volatile and the CAGR is just an annualised average. Equity often beats compounding products over 10+ years, but with much more risk.
Glossary
- Principal
- The original amount of money you invest, before any interest is added.
- Compounding frequency
- How often interest is calculated and added to the principal — annually, half-yearly, quarterly, monthly, or daily.
- Effective annual rate (EAR)
- The actual annual return after accounting for compounding frequency. Always slightly higher than the nominal rate for n > 1.
- Nominal rate
- The stated yearly interest rate, before factoring in compounding effects. The headline number on bank brochures.
- APY (Annual Percentage Yield)
- Same idea as effective annual rate. The actual return you earn in a year accounting for compounding.
- APR (Annual Percentage Rate)
- Used for loans — the simple yearly cost of borrowing, before compounding effects. Typically lower than the effective rate paid.
- Continuous compounding
- The mathematical limit of more and more frequent compounding — interest is added at every infinitesimal moment. Formula: A = P × eʳᵗ. Almost never used in retail products but common in advanced finance.