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CI Formula

A = P(1 + r/n)^(nt)
Where P = principal, r = annual rate/100, n = compounding frequency/year, t = time in years

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How it Works

Interest is added to the principal at each compounding interval. The next period's interest is calculated on the new, higher principal — this is the compounding effect.

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Example

₹1,00,000 at 10% p.a. for 5 years (quarterly)
Total Amount: ₹1,63,862
Interest Earned: ₹63,862

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Compounding Frequency

More frequent compounding means more interest cycles per year. Monthly compounding earns slightly more than yearly on the same principal and rate.

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Key Factors

Principal · Rate of interest · Time period · Compounding frequency. Time and frequency together create the snowball effect of compound growth.

Frequently Asked Questions

What is compound interest? +

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, it grows exponentially — the longer you stay invested, the more the interest-on-interest effect amplifies your returns.

How does compounding frequency affect returns? +

The more frequently interest is compounded, the higher the effective yield. For example, ₹1,00,000 at 10% for 5 years: yearly compounding gives ₹1,61,051; quarterly gives ₹1,63,862; monthly gives ₹1,64,531. The difference grows with higher rates and longer time periods.

What is the difference between compound and simple interest? +

Simple interest is calculated only on the original principal: SI = P × r × t. Compound interest is calculated on the growing balance at each interval. Over time, compound interest generates significantly more than simple interest — the gap widens with longer durations and higher rates.

Can I use this for FD interest calculations? +

Yes. Most bank Fixed Deposits in India use quarterly compounding. Enter your FD principal, the bank's interest rate, and choose "Quarterly" as the compounding frequency to get a close estimate. For monthly-compounding FDs, select "Monthly" instead.

What is the Rule of 72 for compound interest? +

The Rule of 72 is a quick mental shortcut: divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 8% p.a., your money doubles in about 9 years (72 ÷ 8). It works best for yearly compounding and moderate interest rates.

Compound Interest Calculator