What is Compound Interest?
Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. Unlike simple interest – which is earned only on the principal – compound interest makes your money grow exponentially because each period's interest is added back to the principal and starts earning interest itself.
Albert Einstein reportedly called compound interest the eighth wonder of the world. Whether he did or not, the math is undeniable: a small gap in the compounding frequency or a few extra years of compounding can double or triple your final corpus. This calculator lets you see exactly how much that difference amounts to for your money.
Compound Interest Formula
A = P × (1 + r/n)^(n×t)
Where A is the maturity amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years. Our calculator uses monthly compounding (n = 12) by default, which matches most Indian banks and mutual fund NAVs.
Simple vs Compound Interest
Simple interest on ₹1,00,000 at 8% for 10 years = ₹80,000 (total ₹1.8 L). Compound interest on the same money and rate with monthly compounding = ₹1,22,000 (total ₹2.22 L). That ₹42,000 difference is purely the effect of reinvesting interest instead of paying it out. Over 20 years the gap grows dramatically larger.
Frequently Asked Questions
How often is interest compounded in Indian banks?
Fixed deposits are typically compounded quarterly. Savings accounts are compounded daily but credited half-yearly. Mutual fund NAVs effectively compound daily as they are marked to market.
Is compound interest taxable?
Yes, interest earned on FDs is added to your income and taxed at your slab. Equity mutual fund gains above ₹1 lakh per year are taxed at 10% LTCG.
How can I maximise compounding?
Start as early as possible, reinvest dividends, choose the highest compounding frequency you can, and stay invested through market cycles.