What is compound interest?
Compound interest is interest calculated on both the original principal and interest that has already been added to the balance. This is sometimes described as earning or charging “interest on interest.”
Because each compounding period can begin with a larger balance than the previous one, compound growth can become increasingly noticeable over longer periods.
How to use the Compound Interest Calculator
Enter the amount you are starting with, the annual interest rate, the number of years and how often the interest compounds. The calculator then estimates the final amount and total compound interest.
Enter the amount available at the start of the calculation.
Enter the fixed annual percentage rate you want to use for the estimate.
Enter the number of years for which the balance will compound.
Select yearly, half-yearly, quarterly or monthly compounding.
Compound interest formula
A commonly used compound-interest formula is:
The compound interest earned or charged can then be found by subtracting the original principal from the final amount:
Compound interest example
Suppose you start with ₹1,00,000, use an annual interest rate of 8%, and allow the amount to compound monthly for 5 years.
Monthly compounding means there are 12 compounding periods per year, so over 5 years there are 60 compounding periods.
Using the standard formula, the final amount is approximately ₹1,48,985. The difference between that amount and the original ₹1,00,000 principal is the compound interest generated during the period.
What does compounding frequency mean?
Compounding frequency describes how often accrued interest is added to the balance. Once interest has been added, later interest can be calculated on the larger balance.
Interest is added once at the end of each year.
Interest is added twice during each year.
Interest is added four times per year.
Interest is added twelve times per year.
Why compounding frequency matters
When the nominal annual rate and all other values stay the same, more frequent compounding generally produces a slightly higher final balance because interest is added sooner.
The difference between frequencies can be relatively small over short periods, but it can become more noticeable when the rate, balance or time period is larger.
Why time matters so much with compound interest
Time is an important part of compound growth because each period builds on the balance from earlier periods. The longer compounding continues, the more opportunities there are for previously added interest to contribute to later growth.
This is why changing the time period from 5 years to 10 or 20 years can produce a much larger difference than simply doubling the number of years might suggest.
How the interest rate affects compound growth
A higher annual rate generally produces a higher final amount when the principal, time period and compounding frequency stay the same.
Small differences in annual rate can become more noticeable over longer periods because each period compounds the effect of earlier growth.
How the starting principal affects the result
The starting principal is the base amount on which the calculation begins. If every other input remains the same, a larger principal produces proportionally larger interest amounts and a larger final balance.
Compound interest vs simple interest
Simple interest is calculated only on the original principal. Compound interest uses a balance that can include interest added during earlier periods.
Interest is based on the original principal throughout the calculation.
Previously accumulated interest can become part of the balance used for later calculations.
The difference between simple and compound interest becomes more noticeable as the time period or rate increases.
Nominal rate and effective annual growth
When interest compounds more than once per year, the effective annual change can differ from the stated nominal annual rate because interest is added during the year.
For this reason, two products with the same nominal annual rate but different compounding schedules can produce slightly different final balances.
Common uses of compound-interest calculations
Compound-interest calculations can help illustrate how balances may change over time in products or situations where interest is periodically added to the balance.
Estimate how a fixed deposit or savings balance may grow under a fixed rate assumption.
Explore hypothetical growth when returns are modelled using a fixed compounding rate.
Compare how changes in time or rate can affect a future balance.
Compare different compounding frequencies using the same principal and stated rate.
What this calculator does not include
This calculator intentionally uses a simple fixed-value model. Real financial products can behave differently.
The calculator assumes no extra deposits are added after the starting principal.
It assumes money is not removed during the calculation period.
The same annual rate is assumed throughout the entire period.
Taxes, account charges, fees and other costs are not included.
This Compound Interest Calculator provides a mathematical estimate for general information, comparison and planning. It does not predict actual investment returns and is not financial or investment advice.
Real savings products, investments and loans may include changing rates, taxes, fees, different compounding methods, withdrawals, additional contributions or other terms. Review the actual product documents before making a financial decision.