Compound Interest Calculator
Calculate how your investments grow over time with the power of compound interest. Compare different compounding frequencies and visualize your investment growth.
Why Use Our Calculator?
Accurate Calculations
Precisely calculate compound interest for any investment
Visual Breakdowns
Interactive charts that show investment growth
Multiple Frequencies
Calculate interest with different compounding periods
Detailed Breakdown
View and download your full investment schedule
Note: This tool provides investment planning assistance based on the information you provide.
About Compound Interest
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest.
How Compound Interest Works
The formula for compound interest is:
A = P(1 + r/n)nt
Where:
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Number of times the interest is compounded per year
- t = Time period in years
The Power of Compounding
Compound interest has a significant impact on long-term investments. The earlier you start investing, the more time your money has to grow. Even small differences in interest rates can lead to large differences in returns over long periods.
For example, an investment of ₹1,00,000 at 8% interest compounded annually will grow to:
- ₹1,46,933 in 5 years
- ₹2,15,892 in 10 years
- ₹4,66,096 in 20 years
Factors Affecting Compound Interest
Principal Amount
The initial sum of money invested. Larger principal amounts will generate more interest over time.
Interest Rate
Higher interest rates will result in faster growth of your investment. Even a small increase can have a significant impact over long periods.
Time Period
The longer your money is invested, the more time it has to grow. Time is one of the most significant factors in compound interest.
Compounding Frequency
How often interest is calculated and added to the principal. More frequent compounding (e.g., monthly vs. annually) results in higher returns.
Additional Contributions
Regular contributions to your investment can significantly accelerate growth, creating a snowball effect over time.
& Taxes
reduces the purchasing power of returns, while taxes on interest can reduce the effective rate of return.
Frequently Asked Questions
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest rather than paying it out, allowing interest to be earned on both the initial principal and previously-accumulated interest.
This compounding effect is why Albert Einstein reportedly called compound interest the "eighth wonder of the world," stating: "He who understands it, earns it; he who doesn't, pays it."
Simple interest is calculated only on the initial principal, while compound interest is calculated on the principal plus accumulated interest. This means compound interest results in higher returns over time because you earn interest on your interest.
For example, with a principal of ₹100,000 and an annual interest rate of 5%:
- Simple interest: After 10 years, you'd earn ₹50,000 in interest (₹5,000 per year × 10 years).
- Compound interest: After 10 years, you'd earn approximately ₹62,889 in interest, which is ₹12,889 more than with simple interest.
More frequent compounding typically leads to higher returns. The order from highest to lowest returns is:
- Continuous compounding: Interest is calculated and added continuously
- Daily compounding: Interest is calculated and added every day
- Monthly compounding: Interest is calculated and added every month
- Quarterly compounding: Interest is calculated and added every 3 months
- Semi-annual compounding: Interest is calculated and added every 6 months
- Annual compounding: Interest is calculated and added once per year
However, the differences between daily, monthly, and quarterly compounding are relatively small for most practical purposes.
Regular additional contributions significantly accelerate the growth of your investment through compound interest. Even small, consistent contributions can dramatically increase your final balance over long periods due to the compounding effect on each contribution.
For example, starting with ₹100,000 at 8% annual interest compounded monthly:
- With no additional contributions: After 20 years, the balance would be approximately ₹466,096.
- With ₹5,000 monthly contributions: After 20 years, the balance would be approximately ₹3,115,622.
This dramatic difference demonstrates why regular contributions are often more important than the initial investment amount.
reduces the purchasing power of money over time. To account for this, you should aim for investment returns that exceed the rate. Our calculator includes an adjustment feature to show the future value of your investment in today's purchasing power.
For example, with an average annual rate of 4%:
- An investment that grows to ₹1,000,000 after 20 years would have a real purchasing power of approximately ₹456,387 in today's money.
- This means you would need to earn at least 4% annually just to maintain your purchasing power.
This is why it's crucial to consider when evaluating investment returns, especially for long-term goals like retirement planning.
How to Use the Compound Interest Calculator
- Enter your initial investment amount in the "Initial Investment" field.
- Specify the interest rate you expect to earn annually.
- Set your investment term in years or months.
- Select the compounding frequency from the dropdown (monthly, quarterly, etc.).
- Add any regular contributions you plan to make.
- Adjust for or tax if you want to see the real return.
- Click "Calculate Investment" to see your results.
The calculator will display your future value, total investment, interest earned, and a detailed breakdown of your investment growth over time.
Tips for Maximizing Your Returns
- Start early: The sooner you start investing, the more time your money has to grow.
- Increase contributions regularly: Try to increase your contributions as your income grows.
- Choose investments with higher returns: Consider a diversified portfolio that matches your risk tolerance.
- Reinvest dividends and interest: Allow your earnings to compound rather than withdrawing them.
- Minimize fees: High fees can significantly reduce your returns over time.
- Be consistent: Regular contributions often have more impact than the initial investment amount.
Important Disclaimer
The contents of the calculator report are meant solely for information and educational purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation. This calculator and its outputs should not be considered as financial advice. The calculations are based on the information you provide and various assumptions which may not reflect your personal situation accurately. We shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.